Economic Growth, (Re-)Distributive Policies, Capital Mobility and Tax Competition in Open Economies

Günther Rehme

Economics Working Papers from European University Institute

Abstract: This paper investigates the trade-off between growth and distribution in open economies. In closed economies redistribution seems to reduce growth. I show that in open economies tax competition leads redistributing (left-wing) governments to mimic 'right-wing' policies if capital mobility is very high. In the model 'right-wing' governments are strategically passive and just maximize GNP growth. For domestic left-wing governments it is shown that 'left-right' competition leads to more redistribution and lower GDP growth than 'lfet-left' competition. Efficiency differences allow for higher GDP growth and redistribution than one's opponent. Irrespective of efficiency differences 'left-wing' governments are shown to have higher GDP growth rates when competing with other 'left-wing' governments.

Keywords: ECONOMIC GROWTH; EFFICIENCY; GAME THEORY; INCOME DISTRIBUTION (search for similar items in EconPapers)
JEL-codes: C72 D33 F21 H21 O41 (search for similar items in EconPapers)
Pages: 53 pages
Date: 1997
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Citations: View citations in EconPapers (6)

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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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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco97/24

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