Political Party Negotiations Income Distribution and Endogenous Growth

40 Pages Posted: 8 Oct 2014 Last revised: 25 Jan 2015

See all articles by Roberto Chang

Roberto Chang

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 1, 1995

Abstract

This paper examines the determination of the rate of growth in an economy in which two political parties, each representing a different social class, negotiate the magnitude and allocation of taxes. Taxes may increase growth if they finance public services but reduce growth when used to redistribute income between classes. The different social classes have different preferences about growth and redistribution. The resulting conflict is resolved through the tax negotiations between the political parties. I use the model to obtain empirical predictions and policy lessons about the relationship between economic growth and income inequality. The model is consistent with the observation that differences in growth rates across countries are negatively related to income inequality. However, government policy cannot simultaneously increase growth and reduce inequality.

JEL Classification: D7, E6, O1

Suggested Citation

Chang, Roberto, Political Party Negotiations Income Distribution and Endogenous Growth (June 1, 1995). FRB Atlanta Working Paper No. 95-3, Available at SSRN: https://ssrn.com/abstract=2506619 or http://dx.doi.org/10.2139/ssrn.2506619

Roberto Chang (Contact Author)

Rutgers University, New Brunswick/Piscataway - Faculty of Arts and Sciences-New Brunswick/Piscataway - Department of Economics ( email )

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New Brunswick, NJ 08901
United States

National Bureau of Economic Research (NBER)

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