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Economic growth and (re-)distributive policies in a non-cooperative world

  • Rehme, Günther

Many models show that redistribution is bad for growth. This paper argues that in a non-cooperative world optimizing, redistributing (’left-wing’) governments mimic non-redistributing (’right-wing’) policies for fear of capital loss if capital markets become highly integrated and the countries are technologically similar. ’Left-right’ competition leads to more redistribution and lower GDP growth than ’left-left’ competition. Efficiency differences allow for higher GDP growth and more redistribution than one’s opponent. Irrespective of efficiency differences, however, ’left-wing’ governments have higher GDP growth when competing with other ’left-wing’ governments. The results may explain why one observes a positive correlation between redistribution and growth across countries, and why capital inflows and current account deficits may be good for relatively high growth.

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Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 25541.

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Date of creation: 01 Jul 2006
Date of revision:
Publication status: Published in Darmstadt Discussion Papers in Economics . 175 (2006-07-01)
Handle: RePEc:dar:ddpeco:25541
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