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Reexamination of Economic Growth, Tax Policy, and Distributive Politics
Author(s) -
Bao Yong,
Guo JangTing
Publication year - 2004
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2004.00246.x
Subject(s) - economics , labour economics , capital (architecture) , endogenous growth theory , income distribution , tax rate , distribution (mathematics) , capital intensity , double taxation , value added tax , tax reform , state income tax , inequality , monetary economics , macroeconomics , market economy , public economics , human capital , mathematical analysis , mathematics , archaeology , history
The paper examines the relationship between economic growth, tax policy, and distribution of capital and labor ownership in a one‐sector political‐economy model of endogenous growth with productive government spending financed by a proportional tax on capital income. The analysis shows that inequality in wealth and income can be positively or negatively related to the optimal tax rate. In either environment, higher inequality leads to a lower after‐tax return to capital, thereby reducing the economy's growth rate.