Economic growth, (re-)distributive policies, capital mobility and tax competition in open economies

Günther Rehme

No ECO 1997/24, Economics Working Papers from European University Institute

Abstract: In this paper I analyze the trade-off between growth and redistribution policies in a two-country world with tax competition and varying degrees of capital mobility. In many policy discussions that address the issue of growth vs. redistribution, setting higher taxes for redistributive purposes is deemed to slow growth. Yet most developed and some developing countries redistribute a significant share of their GDP. Does this always lead to lower GDP growth? In the model developed in this paper it is argued that the experience of lower or higher GDP growth, when governments opt for redistribution, depends on who their opponents are when setting taxes in a non-cooperative environment. Furthermore, it is argued that the growth/redistribution trade-off problem depends on technology.

Date: 1997
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Related works:
Working Paper: Economic growth, (re-)distributive policies, capital mobility and tax competition in open economies (1997)
Working Paper: Economic Growth, (Re-)Distributive Policies, Capital Mobility and Tax Competition in Open Economies (1997)
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