1 / 8

Distributive Politics and Economic Growth

Distributive Politics and Economic Growth. A Brief Summary John Morrow January 31, 2007. The Question. What implications does the income distribution have for economic growth? How examined:

helga
Télécharger la présentation

Distributive Politics and Economic Growth

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Distributive Politics and Economic Growth A Brief Summary John Morrow January 31, 2007

  2. The Question • What implications does the income distribution have for economic growth? • How examined: • Formal model which concludes that inequality causes “too much” taxation due to redistributive aims of “poor.” • Growth regression w/Gini. Model suggests coefficient on Gini should be negative.

  3. Agents • Continuum of agents own k and l with inelastic labor supply and aggregate labor normalized to 1. • Agents are heterogeneous in capital ownership. Conflict over income distribution occurs in the political arena. • Conflict resolved by simple majority voting, Median voter theorem determines outcomes.

  4. Economy • Aggregate Production y given by aggregate k, l, and government supplied public goods g. • g created through a capital tax tau so that • Put together with l=1 and things are pretty

  5. Hand waving • Turns out for some special preferences that in equilibrium the income distribution is fixed and growth rates of capital and consumption are fixed. • Means we can think of the dynamic model as static. Turns out that the growth maximizing tax rate at all times is: • tau star corresponds to the preferred tax level of an agent who’s ratio of labor to capital is 0.

  6. Voting Preferences • Everyone wants some tau>0since public goods add to production, but the tax incidence is not equal. • Capital owners want lower taxes relative to ”labor” owners. Since g increases the MPL and doesn’t cost much to labor owners, they want higher taxes. • Tau is decided by preferences of the Median voter. More inequality means the median voter owns less capital and therefore wants higher taxes. • Since the growth maximizing tax is below what anyone really wants, higher taxes associated with more inequality reduce growth.

  7. Empirical Results I

  8. Empirical Results II

More Related