Wealth Inequality, Income Redistribution and Growth in 15 OECD countries
We model the individuals' investment in physical capital and education decisions in presence of borrowing constraints and a progressive taxation system. Our empirical evidence for 15 OECD countries supports the theoretical model predictions according to which the effects on growth of higher redistribution are ambiguous. We find that in those countries characterized by a high (low) taxation level and a high (low) degree of tax progressivity, further redistribution has a negative (positive) impact on growth since the disincentive effects on individuals' effort prevail (is dominated by) the positive effect of allowing more people to have access to the capital market.
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