Competing Pressure Groups, Income Distribution and Growth

This paper proposes an endogenous growth model that establishes a negative relationship between the concentration of the non cumulative factor, namely land but also natural resources in general, and long run growth and that offers a theoretical background for redistribution policies such as land reform. The present model has the advantage to link growth to wealth distribution independently of the formal political institution in the economy. In particular building upon some criticisms, both at the empirical and theoretical level, concerning the voting on fiscal policy approach, a different one is suggested here. The present scheme considers a framework in which two groups of agents, with different initial endowments, exert political pressure for a favourable taxation along the lines suggested by Becker (1983). The model defines an equilibrium growth rate for the output of the economy that is a negative function of the real tax rate on capital returns and ultimately of the fixed factor concentration. The rationale of the model lays upon the strong belief that the real cleavage in less developed countries is the one between status quo rent seeking groups and growth promoting groups.