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Why are the data at odds with theory? : growth and (re-)distributive policies in integrated economies

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  • Rehme, Gunther

Abstract

Many theoretical models show that redistribution causes low growth. However, cross-country regressions often suggest that growth is positively related to redistribution. This paper analyzes that puzzle in an open economy framework. Among other things it is shown that tax competition and the danger of capital outflows leads optimizing, redistributing governments to pursue high growth, no redistribution policies in technologically similar economies. However, if a redistributing government's economy is technologically superior, it is shown that it may attract foreign owned capital, have relatively higher GDP growth and may redistribute. Both results imply that in a cross-section of countries one would observe a positive association between growth and redistributive transfers.

Suggested Citation

  • Rehme, Gunther, 1999. "Why are the data at odds with theory? : growth and (re-)distributive policies in integrated economies," Economics Working Papers ECO 1999/43, European University Institute.
    • Handle: RePEc:eui:euiwps:eco1999/43
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    References listed on IDEAS

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    1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
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    Cited by:

    1. Rehme, Gunther, 2006. "Redistribution and economic growth in integrated economies," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 392-408, June.
    2. Günther Rehme, 2007. "Economic Growth and (Re-)Distributive Policies in a Non-cooperative World," Journal of Economics, Springer, vol. 91(1), pages 1-40, May.

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    More about this item

    Keywords

    Growth; Redistribution; Tax Competition; Capital Mobility;
    All these keywords.

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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