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Redistribution and Growth: Pareto Improvements

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  • Chou, Chien-Fu
  • Talmain, Gabriel

Abstract

This paper analyzes the relationship between income distribution and economic growth. It introduces heterogeneous households who have preferences for leisure into Grossman and Helpman's model of endogenous growth (in which income distribution has no effect on economic growth). Wealth distribution affects the endogenous rate of growth as the labor supply of each individual responds inversely to his permanent income. When the labor Engel curve is concave (convex), unequal wealth distribution decreases (increases) the rate of growth. Pareto-improving-growth-enhancing wealth redistributions are characterized. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Chou, Chien-Fu & Talmain, Gabriel, 1996. "Redistribution and Growth: Pareto Improvements," Journal of Economic Growth, Springer, vol. 1(4), pages 505-523, December.
  • Handle: RePEc:kap:jecgro:v:1:y:1996:i:4:p:505-23
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter.
    2. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    4. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    5. Aghion, Philippe & Bolton, Patrick, 1992. "Distribution and growth in models of imperfect capital markets," European Economic Review, Elsevier, vol. 36(2-3), pages 603-611, April.
    6. Musgrave, Richard A, 1970. "Pareto Optimal Redistribution: Comment," American Economic Review, American Economic Association, vol. 60(5), pages 991-993, December.
    7. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    8. K. Hamada, 1967. "On the Optimal Transfer and Income Distribution in a Growing Economy," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 295-299.
    9. Duncan K. Foley, 1992. "A Contribution to the Theory of Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 1071-1088.
    10. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
    11. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-557, Part I Se.
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    Cited by:

    1. Reto Foellmi und Josef Zweim�ller, "undated". "Inequality and Economic Growth - European Versus U.S. Experiences," IEW - Working Papers 158, Institute for Empirical Research in Economics - University of Zurich.
    2. Reto Foellmi & Josef Zweimuller, 2006. "Income Distribution and Demand-Induced Innovations," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 941-960.
    3. Guido Cozzi, 2008. "Why the rich should like R&D less," Working Papers 2008_18, Business School - Economics, University of Glasgow, revised Aug 2008.
    4. Hatipoglu, Ozan, 2008. "Patent, Inequality and Innovation-Driven Growth," MPRA Paper 7855, University Library of Munich, Germany.
    5. Ozan Hatipoglu, 2007. "A Demand Based Theory of Income Distribution and Growth," Working Papers 2007/08, Bogazici University, Department of Economics.
    6. Debasis Bandyopadhyay & Parantap Basu, 2000. "The Growth-Inequality Relationship in a Model with Discrete Occupational Choice and Redistributive Tax," Econometric Society World Congress 2000 Contributed Papers 0809, Econometric Society.
    7. Josef ZweimüLler, 2000. "Inequality, Redistribution, and Economic Growth," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 27(1), pages 1-20, March.
    8. Oded, Galor, 2011. "Inequality, Human Capital Formation, and the Process of Development," Handbook of the Economics of Education, Elsevier.
    9. Oded Galor, 2009. "Inequality and Economic Development: An Overview," Working Papers 2009-3, Brown University, Department of Economics.
    10. Reto Foellmi & Josef Zweim�ller, "undated". "Structural Change and the Kaldor Facts of Economic Growth," IEW - Working Papers 111, Institute for Empirical Research in Economics - University of Zurich.
    11. Zweimuller, Josef, 2000. "Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth," Journal of Economic Growth, Springer, vol. 5(2), pages 185-206, June.
    12. Ozan Hatipoglu, 2007. "Inequality and Growth. Where Are We Headed? A Survey," Working Papers 2007/07, Bogazici University, Department of Economics.
    13. Hyoungsoo Zang, 1997. "Technology Transfer, Income Distribution and the Process of Economic Development," Open Economies Review, Springer, vol. 8(3), pages 245-270, July.
    14. Angus C. Chu, 2010. "Effects of Patent Policy on Income and Consumption Inequality in a R&D Growth Model," Southern Economic Journal, Southern Economic Association, vol. 77(2), pages 336-350, October.
    15. Chu, Angus C., 2012. "Global Poverty Reduction And Pareto-Improving Redistribution," Macroeconomic Dynamics, Cambridge University Press, vol. 16(04), pages 605-624, September.
    16. Reto Foellmi & Josef Zweimüller, 2017. "Is inequality harmful for innovation and growth? Price versus market size effects," Journal of Evolutionary Economics, Springer, vol. 27(2), pages 359-378, April.
    17. repec:red:issued:17-109 is not listed on IDEAS
    18. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, vol. 13(1), pages 57-80, March.
    19. Foellmi, Reto & Josef Zweim¸ller, 2002. "Heterogeneous Mark-ups, Demand Composition, and the Inequality-Growth Relation," Royal Economic Society Annual Conference 2002 76, Royal Economic Society.
    20. Jean-François Wen & Cecilia García-Peñalosa, 2004. "Redistribution and Occupational Choice in a Schumpeterian Growth Model," CESifo Working Paper Series 1323, CESifo Group Munich.
    21. Chu, Angus C. & Cozzi, Guido & Fan, Haichao & Furukawa, Yuichi & Liao, Chih-Hsing, 2018. "Innovation and Inequality in a Monetary Schumpeterian Model with Heterogeneous Households and Firms," MPRA Paper 84711, University Library of Munich, Germany.
    22. Angus Chu & Guido Cozzi, 2018. "Effects of Patents versus R&D subsidies on Income Inequality"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 29, pages 68-84, July.

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