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The tradeoff between growth and redistribution: ELIE in an overlapping generations model

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  • de la CROIX, David

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • LUBRANO, Michel

Abstract

The ELIE scheme of Kolm taxes labour capacities instead of labour income in order to circumvent the distortionary effect of taxation on labour supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, we build an overlapping generations (OLG) model with heterogenous agents and endogenous growth driven by investment in human capital. We study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, we highlight a tradeoff between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth. In an economy with an imperfect credit market where individuals cannot borrow to educate, the tradeoff between growth and redistribution is not overturned but is less severe. However, it is possible to overturn completely that trade-off simply by changing the base of taxation for the young generation which is equivalent to subsidising education.
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Suggested Citation

  • de la CROIX, David & LUBRANO, Michel, 2009. "The tradeoff between growth and redistribution: ELIE in an overlapping generations model," LIDAM Discussion Papers CORE 2009018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2009018
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2009.html
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Fair labor income tax and human capital accumulation
      by Economic Logician in Economic Logic on 2009-09-29 19:30:00

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    Cited by:

    1. Peter J. Stauvermann & Ronald R. Kumar, 2018. "Adult Learning, Economic Growth and the Distribution of Income," Economies, MDPI, vol. 6(1), pages 1-12, February.

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    Keywords

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    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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