Economic Growth, (Re-)Distributive Policies, Capital Mobility and Tax Competition in Open Economies
This paper investigates the trade-off between growth and distribution in open economies. In closed economies redistribution seems to reduce growth. I show that in open economies tax competition leads redistributing (left-wing) governments to mimic 'right-wing' policies if capital mobility is very high. In the model 'right-wing' governments are strategically passive and just maximize GNP growth. For domestic left-wing governments it is shown that 'left-right' competition leads to more redistribution and lower GDP growth than 'lfet-left' competition. Efficiency differences allow for higher GDP growth and redistribution than one's opponent. Irrespective of efficiency differences 'left-wing' governments are shown to have higher GDP growth rates when competing with other 'left-wing' governments.
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