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Endogenous distribution and equilibrium growth: a note
Author(s) -
Ghate Chetan
Publication year - 2005
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.0307-3378.2005.00219.x
Subject(s) - economics , distributive property , voting , distribution (mathematics) , majority rule , endogenous growth theory , tax rate , microeconomics , capital accumulation , capital (architecture) , convergence (economics) , income distribution , democracy , politics , macroeconomics , inequality , market economy , human capital , profit (economics) , history , mathematical analysis , mathematics , archaeology , artificial intelligence , political science , computer science , pure mathematics , law
Abstract Does distributive conflict diminish during the course of economic development? This article outlines a model in which distribution, the tax rate and growth evolve endogenously over time. When voting occurs over a tax on capital, we show that the growth rate is maximized at the political equilibrium in the long run. When voting occurs over a general income tax, we show that the growth rate is maximized at the political equilibrium in both the short and long run. These results suggest that the transitional dynamics of growth models with redistributive politics lead to growth‐maximizing outcomes, as distributive conflict diminishes in the course of development. This implies that the democratic process leads to greater consensus over policy choices, with a perfect convergence of interest across individuals with respect to the tax rate.