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

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  • Günther Rehme

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Abstract

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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Suggested Citation

  • Günther Rehme, 2007. "Economic Growth and (Re-)Distributive Policies in a Non-cooperative World," Journal of Economics, Springer, vol. 91(1), pages 1-40, May.
  • Handle: RePEc:kap:jeczfn:v:91:y:2007:i:1:p:1-40
    DOI: 10.1007/s00712-006-0226-2
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    File URL: http://hdl.handle.net/10.1007/s00712-006-0226-2
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    References listed on IDEAS

    as
    1. Rehme, Gunther, 2000. "Economic Growth and (Re-)Distributive Policies: A Comparative Dynamic Analysis," Economics Working Papers ECO 2000-13, European University Institute.
    2. Amiel,Yoram & Cowell,Frank, 1999. "Thinking about Inequality," Cambridge Books, Cambridge University Press, number 9780521466967, April.
    3. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, January.
    4. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    5. Sala-i-Martin, Xavier X, 1996. "A Positive Theory of Social Security," Journal of Economic Growth, Springer, vol. 1(2), pages 277-304, June.
    6. Enrique G. Mendoza & Linda L. Tesar, 2003. "Winners and Losers of Tax Competition in the European Union," NBER Working Papers 10051, National Bureau of Economic Research, Inc.
    7. Enrique G. Mendoza & Linda L. Tesar, 2003. "A Quantitative Analysis of Tax Competition v. Tax Coordination under Perfect Capital Mobility," NBER Working Papers 9746, National Bureau of Economic Research, Inc.
    8. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    9. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 567-586.
    10. Rehme, G., 1997. "Economic Growth, (Re-)Distributive Policies, Capital Mobility and Tax Competition in Open Economies," Economics Working Papers eco97/24, European University Institute.
    11. repec:dau:papers:123456789/10091 is not listed on IDEAS
    12. Branko Milanovic, 2003. "The median voter hypothesis, income inequality and income," HEW 0305001, EconWPA.
    13. Rehme, Gunther, 1999. "Why are the data at odds with theory? : growth and (re-)distributive policies in integrated economies," Economics Working Papers ECO 1999/43, European University Institute.
    14. Chamley, Christophe, 1992. "The last shall be first: Efficient constraints on foreign borrowing in a model of endogenous growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 335-354, December.
    15. Rehme, Gunther, 1995. "Redistribution, wealth tax competition and capital flight in growing economies," Economics Working Papers ECO 1995/09, European University Institute.
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    Citations

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    Cited by:

    1. Rehme, Günther, 2014. "Endogenous (re-)distributive policies and economic growth: A comparative static analysis," Economic Modelling, Elsevier, vol. 40(C), pages 355-366.
    2. repec:mje:mjejnl:v:13:y:2017:i:2:p:121-127 is not listed on IDEAS
    3. Toshiki Tamai, 2015. "Redistributive taxation, wealth distribution, and economic growth," Journal of Economics, Springer, vol. 115(2), pages 133-152, June.
    4. repec:mje:mjejnl:v:12:y:2017:i:2:p:121-127 is not listed on IDEAS

    More about this item

    Keywords

    growth; distribution; tax competition; capital mobility; O4; H21; D33; C72; F21;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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