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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," CORE Discussion Papers 2009018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2009018
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    References listed on IDEAS

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    1. De Gregorio, Jose & Kim, Se-Jik, 2000. "Credit Markets with Differences in Abilities: Education, Distribution, and Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(3), pages 579-607, August.
    2. Kolm,Serge-Christophe, 2005. "Macrojustice," Cambridge Books, Cambridge University Press, number 9780521835039, May.
    3. Philippe Askenazy & Gilbert Cette & Arnaud Sylvain, 2011. "Le partage de la valeur ajoutée," Post-Print halshs-00654669, HAL.
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    5. Cardia, Emanuela & Kozhaya, Norma & Ruge-Murcia, Francisco J, 2003. " Distortionary Taxation and Labor Supply," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(3), pages 350-373, June.
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    8. Michel Lubrano, 2008. "The Redistributive Aspects of ELIE: a simulationapproach," Working Papers halshs-00347278, HAL.
    9. David de la CROIX, 2014. "Economic Growth," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2014019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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    More about this item

    Keywords

    education; growth; redistribution; Kolm;

    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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