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Economic Growth and (Re-)Distributive Policies in a Non-cooperative World

  • Günther Rehme

    ()

Many models show that redistribution is bad for growth. This paper argues that in a non-cooperative world optimizing, redistributing (’left-wing’) governments mimic non-redistributing (’right-wing’) policies for fear of capital loss if capital markets become highly integrated and the countries are technologically similar. ’Left-right’ competition leads to more redistribution and lower GDP growth than ’left-left’ competition. Efficiency differences allow for higher GDP growth and more redistribution than one’s opponent. Irrespective of efficiency differences, however, ’left-wing’ governments have higher GDP growth when competing with other ’left-wing’ governments. The results may explain why one observes a positive correlation between redistribution and growth across countries, and why capital inflows and current account deficits may be good for relatively high growth.

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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 91 (2007)
Issue (Month): 1 (May)
Pages: 1-40

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Handle: RePEc:kap:jeczfn:v:91:y:2007:i:1:p:1-40
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