IDEAS home Printed from
   My bibliography  Save this paper

Efficient Income Redistribution in a Growing Economy


  • Gerhard Sorger


We consider a neoclassical growth model in which the society consists of two classes (capitalists and workers). The capitalists consume part of their income and save the rest, whereas the workers are assumed to consume their entire income immediately without saving anything. The governement can redistribute income between the two classes by lump-sum transfers and taxation. We first state the result due to Kaital and Pohjola (1990), which characterizes the set of all first best solutions. We then show that the differential game between the capitalistic class and the government has a Markov-perfect Nash equilibrium which coincides with one of the first best solutions. This equilibrium features a long-run transfer of all wage income from the workers to the capitalists. On analyse un modèle néoclassique où la population se compose de deux classes (les capitalistes et les ouvriers). Les capitalistes consomment une portion de leur revenu et éprgnent le reste. Les ouvriers consomment tout leur revenu et n'épargnent rien. Le gouvernement peut redistribuer le revenu entre les deux classes au moyen des taxes et des transferts forfaitaires. D'abord on formule un résultat de Kaitala et Pohjola (1990) qui caractérise l'ensemble des solutions optimales de premier rang. Ensuite on démontre que dans le jeu différentiel entre la classe capitaliste et le gouvernement, il existe un équilibre Markov-parfait de Nash qui coïncide avec une solution optimale de premier rang. Cet équilibre implique des transferts à long terme du revenu de la classe ouvrière à la classe capitaliste.

Suggested Citation

  • Gerhard Sorger, 1996. "Efficient Income Redistribution in a Growing Economy," CIRANO Working Papers 96s-29, CIRANO.
  • Handle: RePEc:cir:cirwor:96s-29

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Kaitala, Veijo & Pohjola, Matti, 1990. "Economic Development and Agreeable Redistribution in Capitalism: Efficient Game Equilibria in a Two-Class Neoclassical Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 421-438, May.
    2. K. Hamada, 1967. "On the Optimal Transfer and Income Distribution in a Growing Economy," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 295-299.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Income redistribution; Neoclassical growth model; Differential game; Markov perfect Nash equilibrium; Redistribution du revenu; modèle néoclassique de la croissance; jeu différentiel; équilibre Markov-parfait de Nash;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cir:cirwor:96s-29. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.