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Fiscal transfers and distributive conflict in a simple endogenous growth model with unemployment

  • Luigi Bonatti

    ()

    (Department of Economics, University of Bergamo)

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    In the simplified formal treatment proposed in this paper, a decrease in a policy parameter the ratio of total tax revenues to GDP can monotonically increase long-term growth rate and may lead to a higher employment level. This notwithstanding, the paper shows that the redistributive implications of such a decrease may induce the wage earners to oppose it. As a consequence, policy makers reflecting social preferences may undertake redistributive transfers generating persistent unemployment and lowering growth even if commitment technologies allowing them to follow pre-announced tax policies were feasible.

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    File URL: http://aisberg.unibg.it/bitstream/10446/192/1/WPEco01(2004)Bonatti.pdf
    File Function: Version, 08-2004
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    Paper provided by University of Bergamo, Department of Economics in its series Working Papers (-2012) with number 0401.

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    Length: 20 pages
    Date of creation: Aug 2004
    Date of revision:
    Handle: RePEc:brg:wpaper:0401
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    1. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
    2. repec:hrv:faseco:3353756 is not listed on IDEAS
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    4. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
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    6. Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
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    8. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
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    10. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 1999. "Fiscal Policy, Profits, and Investment," NBER Working Papers 7207, National Bureau of Economic Research, Inc.
    11. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
    12. Lansing, Kevin J., 1999. "Optimal redistributive capital taxation in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 73(3), pages 423-453, September.
    13. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
    14. Ellen R. McGrattan & James A. Schmitz, Jr., 1998. "Explaining cross-country income differences," Staff Report 250, Federal Reserve Bank of Minneapolis.
    15. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    16. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
    17. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    18. Park, Hyun & Philippopoulos, Apostolis, 2003. "On the dynamics of growth and fiscal policy with redistributive transfers," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 515-538, March.
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