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Inequality, politics and economic growth

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  • Chakrabarty, Debajyoti

Abstract

The paper studies the relationship between inequality and economic growth. This is done in a two sector model of endogenous growth with agents characterized by heterogeneity of factor endowments. The private sector consists of a large number of competitive ¯rms who produce the only ¯nal good in the economy. This good is both consumable as well as accumulable. The government is seen to produce a productive factor interpreted as infrastructure. Infrastructure is both nonrival and accumulable. Infrastructural services °ow into the production of infrastructural stocks as well as the ¯nal good. Capital used for infrastructural production is ¯nanced by the government by taxing capital income. The choice of the growth rate is determined by the tax rate on capital income. We study the choice of the economy's growth rate under a median voter democracy. The results show that inequality of the distribution of capital does not hamper growth.

Suggested Citation

  • Chakrabarty, Debajyoti, 2002. "Inequality, politics and economic growth," ZEI Working Papers B 28-2002, University of Bonn, ZEI - Center for European Integration Studies.
    • Handle: RePEc:zbw:zeiwps:b282002
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    References listed on IDEAS

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    1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-1198, December.
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    7. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    8. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. G rkemli Kazar & Altu Kazar, 2015. "Is Harmonious Development Valid for European Union Regions?," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 954-967.

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    More about this item

    Keywords

    Endogenous growth; Infrastructure; Nonrival input; Welfare; Political equilibrium;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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