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