Inequality, Redistribution and Growth

CentER Discussion Paper No. 2004-94

31 Pages Posted: 12 Nov 2004

See all articles by Daniel Haile

Daniel Haile

Tilburg University

A. C. Meijdam

Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Economics

Date Written: October 2004

Abstract

This paper analyzes the political economy of redistribution between two income groups in a dynamic economy and provides theoretical linkages between lobbying activities, income distribution and growth. It explains why the relationship between redistribution and growth is non-monotonic. Moreover, it is shown that in the presence of investment indivisibilities in human capital and missing capital markets, both the pressure for redistribution and the initial wealth distribution affect economic growth. Persistence in inequality prevails when the political pressure by the low-skilled to increase redistribution is blocked by the lobby for lower taxes by the skilled, allowing for multiple steady-state equilibria. The resulting relationships are explored both theoretically and quantitatively.

Keywords: Inequality, redistribution, economic growth, taxation, political economy, lobbying

JEL Classification: D30, D72, H23, O40

Suggested Citation

Haile, Daniel and Meijdam, A.C. (Lex), Inequality, Redistribution and Growth (October 2004). CentER Discussion Paper No. 2004-94, Available at SSRN: https://ssrn.com/abstract=617181 or http://dx.doi.org/10.2139/ssrn.617181

Daniel Haile (Contact Author)

Tilburg University ( email )

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

A.C. (Lex) Meijdam

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 23 85 (Phone)
+31 13 466 30 42 (Fax)

Tilburg University - Department of Economics

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
219
Abstract Views
1,853
rank
178,307
PlumX Metrics