Economic Growth and (Re-)Distributive Policies in a Non-cooperative World |
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Authors: | Günther Rehme |
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Institution: | (1) TU Darmstadt, FB 1/VWL 1, Schools, 64283 Darmstadt, Germany |
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Abstract: | Many models show that redistribution is bad for growth. This paper argues that in a non-cooperative world optimizing, redistributing
(“left-wing”) governments mimic non-redistributing (“right-wing”) policies for fear of capital loss if capital markets become
highly integrated and the countries are technologically similar. “Left-right” competition leads to more redistribution and
lower GDP growth than “left-left” competition. Efficiency differences allow for higher GDP growth and more redistribution than one's opponent. Irrespective of efficiency differences, however, “left-wing” governments have higher
GDP growth when competing with other “left-wing” governments. The results may explain why one observes a positive correlation
between redistribution and growth across countries, and why capital inflows and current account deficits may be good for relatively
high growth. |
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Keywords: | growth distribution tax competition capital mobility |
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