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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. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    2. Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
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    4. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-50, June.
    5. Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
    6. 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.
    7. Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Ellen R. McGrattan & James A. Schmitz, Jr., 1998. "Explaining cross-country income differences," Staff Report 250, Federal Reserve Bank of Minneapolis.
    9. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
    10. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
    11. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-56, March.
    12. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
    13. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
    14. Paola Caselli & Patrizio Pagano & Fabiano Schivardi, 2001. "Investment and Growth in Europe and in the United States in the Nineties," Rivista di Politica Economica, SIPI Spa, vol. 91(8), pages 3-36, October.
    15. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
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    17. repec:hrv:faseco:3353756 is not listed on IDEAS
    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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