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Political Party Negotiations, Income Distribution and Endogenous Growth

  • Chang, R.

This paper examines the determination of the rate of growth in an economy in which two political parties, each representing a different social class, negotiate the magnitude and allocation of taxes. Taxes may increase growth if they finance public services but reduce growth when used to redistribute income between classes. The different social classes have different preferences about growth and redistribution. The resulting conflict is resolved through the tax negotiations between the political parties. I use the model to obtain empirical predictions and policy lessons about the relationship between economic growth and income inequality. The model is consistent with the observation that differences in growth rates across countries are negatively related to income inequality. However, government policy cannot simultaneously increase growth and reduce inequality.

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File URL: http://econ.as.nyu.edu/docs/IO/9391/RR92-39.pdf
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 92-39.

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Length: 32 pages
Date of creation: 1992
Date of revision:
Handle: RePEc:cvs:starer:92-39
Contact details of provider: Postal:
C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012

Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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  1. Bertola, Giuseppe, 1991. "Factor Shares and Savings In Endogenous Growth," CEPR Discussion Papers 576, C.E.P.R. Discussion Papers.
  2. Roberto Chang, 1994. "Bargaining a monetary union," FRB Atlanta Working Paper 94-4, Federal Reserve Bank of Atlanta.
  3. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
  4. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  5. Perotti, Roberto, 1992. "Income Distribution, Politics, and Growth," American Economic Review, American Economic Association, vol. 82(2), pages 311-16, May.
  6. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  7. Benhabib, Jess & Rustichini, Aldo, 1991. "Social Conflict, Growth and Income Distribution," Working Papers 91-22, C.V. Starr Center for Applied Economics, New York University.
  8. Guido Enrico Tabellini & Torsten Persson, 1991. "Growth, Distribution and Politics," IMF Working Papers 91/78, International Monetary Fund.
  9. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  10. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  11. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  12. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92 National Bureau of Economic Research, Inc.
  13. Aghion, Philippe & Bolton, Patrick, 1992. "Distribution and growth in models of imperfect capital markets," European Economic Review, Elsevier, vol. 36(2-3), pages 603-611, April.
  14. Tornell, Aaron, 1997. "Economic Growth and Decline with Endogenous Property Rights," Journal of Economic Growth, Springer, vol. 2(3), pages 219-50, September.
  15. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  16. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
  17. Roberto Chang, 1993. "Private investment and sovereign debt negotiations," FRB Atlanta Working Paper 93-8, Federal Reserve Bank of Atlanta.
  18. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
  19. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  20. Chari, V V & Kehoe, Patrick J, 1990. "Sustainable Plans," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 783-802, August.
  21. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  22. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  23. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
  24. Julio J. Rotemberg & Michael Woodford, 1989. "Oligopolistic Pricing and the Effects of Aggregate Demand on Economic Activity," NBER Working Papers 3206, National Bureau of Economic Research, Inc.
  25. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  26. Benhabib, Jess & Rustichini, Aldo, 1996. "Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  27. V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans and mutual default," Staff Report 124, Federal Reserve Bank of Minneapolis.
  28. Jeremy I. Bulow & Kenneth Rogoff, 1986. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  29. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  30. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  31. Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
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