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Reexamination of Economic Growth, Tax Policy, and Distributive Politics
Article first published online: 5 AUG 2004
DOI: 10.1111/j.1467-9361.2004.00246.x
1467-9361/asset/cover.gif?v=1&s=2c36e56d4ddfe0ec8c70b9cfd742db75b196ad53 "Review of Development Economics")
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How to Cite
Bao, Y. and Guo, J.-T. (2004), Reexamination of Economic Growth, Tax Policy, and Distributive Politics. Review of Development Economics, 8: 474–482. doi: 10.1111/j.1467-9361.2004.00246.x
Publication History
- Issue published online: 5 AUG 2004
- Article first published online: 5 AUG 2004
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Abstract
The paper examines the relationship between economic growth, tax policy, and distribution of capital and labor ownership in a one-sector political-economy model of endogenous growth with productive government spending financed by a proportional tax on capital income. The analysis shows that inequality in wealth and income can be positively or negatively related to the optimal tax rate. In either environment, higher inequality leads to a lower after-tax return to capital, thereby reducing the economy's growth rate.