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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
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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. Greenwood, Jeremy & Jovanovic, Boyan, 1988. "Financial Development, Growth, And The Distribution Of Income," Working Papers 88-12, C.V. Starr Center for Applied Economics, New York University.
  2. 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.
  3. Perotti, Roberto, 1992. "Income Distribution, Politics, and Growth," American Economic Review, American Economic Association, vol. 82(2), pages 311-16, May.
  4. 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.
  5. Aaron Tornell, 1993. "Economic Growth and Decline with Endogenous Property Rights," NBER Working Papers 4354, National Bureau of Economic Research, Inc.
  6. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  7. Chang, Roberto, 1991. "Private Investment and Sovereign Debt Negotiations," Working Papers 91-47, C.V. Starr Center for Applied Economics, New York University.
  8. 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.
  9. V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
  10. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  11. 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.
  12. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  13. Bénabou, Roland, 1996. "Inequality and Growth," CEPR Discussion Papers 1450, C.E.P.R. Discussion Papers.
  14. Chang Roberto, 1995. "Bargaining a Monetary Union," Journal of Economic Theory, Elsevier, vol. 66(1), pages 89-112, June.
  15. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  16. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  17. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  18. Benhabib, Jess & Rustichini, Aldo, 1996. "Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  19. Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
  20. Roberto Perotti, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Oxford University Press, vol. 60(4), pages 755-776.
  21. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  22. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  23. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  24. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
  25. Giuseppe Bertola, 1991. "Factor Shares and Savings in Endogenous Growth," NBER Working Papers 3851, National Bureau of Economic Research, Inc.
  26. Guido Enrico Tabellini & Torsten Persson, 1991. "Growth, Distribution and Politics," IMF Working Papers 91/78, International Monetary Fund.
  27. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  28. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  29. Saint-Paul, Gilles & Verdier, Thierry, 1992. "Education, Democracy and Growth," CEPR Discussion Papers 613, C.E.P.R. Discussion Papers.
  30. 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.
  31. V. V. Chari & Patrick E. Kehoe, 1990. "Sustainable Plans and Mutual Default," IMF Working Papers 90/22, International Monetary Fund.
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