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Economic Growth and (Re-)Distributive Policies in a Non-cooperative World

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Abstract

Many models show that redistribution is bad for growth. This paper argues that in a non-cooperative world optimizing, redistributing (“left-wing”) governments mimic non-redistributing (“right-wing”) policies for fear of capital loss if capital markets become highly integrated and the countries are technologically similar. “Left-right” competition leads to more redistribution and lower GDP growth than “left-left” competition. Efficiency differences allow for higher GDP growth and more redistribution than one's opponent. Irrespective of efficiency differences, however, “left-wing” governments have higher GDP growth when competing with other “left-wing” governments. The results may explain why one observes a positive correlation between redistribution and growth across countries, and why capital inflows and current account deficits may be good for relatively high growth.

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  1. TU Darmstadt, FB 1/VWL 1, Schools, 64283, Darmstadt, Germany

    Günther Rehme

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  1. Günther Rehme
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Rehme, G. Economic Growth and (Re-)Distributive Policies in a Non-cooperative World. J Econ 91, 1–40 (2007). https://doi.org/10.1007/s00712-006-0226-2

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  • DOI: https://doi.org/10.1007/s00712-006-0226-2

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