Economic Growth and (Re-)Distributive Policies: A Comparative Dynamic Analysis

This paper analyzes the interplay of growth, distribution and public policies when the latter depend on economically important fundamentals. It is shown that not only pro-capital, but also pro-labour or income egalitarian policies lead to high growth. A wealth redistribution policy generally causes lower growth, but less so when there is technological progress. The model implies that high tax rates per se do not necessarily imply low growth. The paper argues that the long-run relationship between growth, post-tax factor incomes and public policies is more complicated in theory and especially when comparing countries as often suggested