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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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File URL: http://hdl.handle.net/10.1007/s00712-006-0226-2
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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
DOI: 10.1007/s00712-006-0226-2
Contact details of provider: Web page: http://www.springer.com

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  4. Rehme, G., 1999. "Why are the Data at Odds with Theory? Growth and (Re-)Distributive Policies in Integrated Economies," Economics Working Papers eco99/43, European University Institute.
  5. 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.
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  7. repec:dau:papers:123456789/10091 is not listed on IDEAS
  8. 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.
  9. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, March.
  10. Rehme, G., 2000. "Economic Growth and (Re-)Distributive Policies: A Comparative Dynamic Analysis," Economics Working Papers eco2000/13, European University Institute.
  11. 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.
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  13. Amiel,Yoram & Cowell,Frank, 1999. "Thinking about Inequality," Cambridge Books, Cambridge University Press, number 9780521466967, Junio.
  14. Rehme, G., 1997. "Economic Growth, (Re-)Distributive Policies, Capital Mobility and Tax Competition in Open Economies," Economics Working Papers eco97/24, European University Institute.
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