Endogenous Distribution and Equilibrium Growth: A Note

14 Pages Posted: 2 Apr 2005

See all articles by Chetan Ghate

Chetan Ghate

Indian Statistical Institute - Planning Unit; German Institute for Economic Research (DIW Berlin)

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.

Suggested Citation

Ghate, Chetan, Endogenous Distribution and Equilibrium Growth: A Note. Available at SSRN: https://ssrn.com/abstract=697323

Chetan Ghate (Contact Author)

Indian Statistical Institute - Planning Unit ( email )

7 S. J. S. Sansanwal Marg
New Delhi, 110016
India
91 11 51493938 (Phone)
91 11 2685 6779 (Fax)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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