Distributive politics and economic growth

Abstract

We study the relationship between politics and economic growth in a simple model of endogenous growth with distributive conflict among agents endowed with varying capital/labor shares. We establish several results regarding the factor ownership of the median individual and the level of taxation, redistribution, and growth. Policies that maximize growth are optimal only for a government that cares solely about pure capitalists. The greater the inequality of wealth and income, the higher the rate of taxation, and the lower growth. We present empirical results that show that inequality in land and income ownership is negatively correlated with subsequent economic growth. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.