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The political economy of growth and distribution: A theoretical critique

  • Josten, Stefan Dietrich
  • Truger, Achim
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    This paper reconsiders the political economy approach to growth and distribution according to which (1) rising inequality induces more government redistribution; (2) more government redistribution is financed by higher distortionary taxation; and (3) higher distortionary taxes reduce economic growth. We present a variety of theoretical arguments demonstrating that all three propositions may be overturned by simply changing an assumption in a plausible way or adding a relevant real-world element to the basal models. The political economy models of growth and distribution, as well as the specific inequality-growth transmission channel they propose, must therefore be assessed as overly simplistic and inadequate with respect to the issues studied.

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    File URL: http://econstor.eu/bitstream/10419/50470/1/362976783.pdf
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    Paper provided by Wirtschafts- und Sozialwissenschaftliches Institut (WSI), Hans-Böckler-Stiftung in its series WSI Discussion Papers with number 111.

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    Date of creation: 2003
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    Handle: RePEc:zbw:wsidps:111
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    29. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January.
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