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The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model

David de la Croix () and Michel Lubrano ()

No 2009011, Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The ELIE scheme of Kolm taxes labour capacities instead of labour income in order to circumvent the distortionary effect of taxation on labour supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, we build an overlapping generations (OLG) model with heterogenous agents and endogenous growth driven by investment in human capital. We study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, we highlight a tradeoff between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth. In an economy with an imperfect credit market where individuals cannot borrow to educate, the tradeoff between growth and redistribution is not overturned but is less severe. However, it is possible to overturn completely that trade-off simply by changing the base of taxation for the young generation which is equivalent to subsidising education.

Keywords: Education; Growth; Redistribution; Kolm (search for similar items in EconPapers)
JEL-codes: O41 H20 I38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-pub
Date: 2009-06-01
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Related works:
Working Paper: The tradeoff between growth and redistribution: ELIE in an overlapping generations model (2010)
Working Paper: The tradeoff between growth and redistribution: ELIE in an overlapping generations model (2009) Downloads
Working Paper: The Tradeoff Between Growth and Redistribution: ELIE in an Overlapping Generations Model (2009) Downloads
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