Redistribution spurs growth by using a portfolio effect on risky human capital
Jan Lorenz (),
Fabian Paetzel and
Frank Schweitzer
Working Papers from ETH Zurich, Chair of Systems Design
Abstract:
We demonstrate by mathematical analysis and systematic computer simulations that redistribution can lead to sustainable growth in a society. In accordance with economic models of risky human capital, we assume that dynamics of human capital is modeled as a multiplicative stochastic process which, in the long run, leads to the destruction of individual human capital. When agents are linked by fully- redistributive taxation the situation might turn to individual growth in the long run. We consider that a government collects a proportion of income and reduces it by a fraction as costs for administration (efficiency losses). The remaining public good is equally redistributed to all agents. Sustainable growth is induced by redistribution despite the losses from the random growth process and despite administrative costs. Growth results from a portfolio effect. The findings are verified for three different tax schemes: proportional tax, taking proportional more from the rich, and proportionally more from the poor. We discuss which of these tax schemes performs better with respect to maximize growth under a fixed rate of administrative costs, and with respect to maximize the governmental income. This leads us to some general conclusions about governmental decisions, the relation to public good games with free-riding, and the function of taxation in a risk taking society.
Keywords: economic growth; taxation; human capital; wealth redistribution (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
ftp://web.sg.ethz.ch/RePEc/stz/wpaper/pdf/ETH-RC-12-018.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Failed to connect to FTP server web.sg.ethz.ch: A connection attempt failed because the connected party did not properly respond after a period of time, or established connection failed because connected host has failed to respond.
Related works:
Journal Article: Redistribution Spurs Growth by Using a Portfolio Effect on Risky Human Capital (2013) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:stz:wpaper:eth-rc-12-018
Access Statistics for this paper
More papers in Working Papers from ETH Zurich, Chair of Systems Design Contact information at EDIRC.
Bibliographic data for series maintained by Claudio J. Tessone ( this e-mail address is bad, please contact ).