Endogenous Redistributive Cycles
This paper discusses the emergence of endogenous redistributive cycles in a stochastic growth model with incomplete asset markets and heterogeneous agents, where agents vote on the degree of progressivity in the tax-transfer-scheme. We develop two models, the first being highly-stylized, where redistributive cycles occur in a simple majority voting process due to counter-acting effects from inequality aversion and prospects of upward mobility. The second model draws from Benabou (1996) and ties the bias in the distribution of political power to the degree of inequality in the society, thereby triggering redistributive cycles which then give rise to a nonlinear, cyclical pattern of growth and savings rates over time
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|Date of creation:||11 Aug 2004|
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