Discussion Papers in Economics

Planning Unit, Indian Statistical Institute, Delhi

#03-06:

Endogenous Distribution,Politics, and The Growth-Equity Tradeoff :
Satya P. Das and Chetan Ghate

Abstract

In comparison to the standard literature on inequality and growth which assumes the former to be exogenous, we formulate a model in which inequality and growth are both endogenous. Furthermore, long-run distribution, at least locally, is shown to be independent of the initial distribution of factor ownership. It is shown that exogenous policy changes that are primarily targeted towards growth and foster less inequality do enhance growth. But those that are primarily redistributive and imply more equal distribution reduce growth. This is consistent with recent empirical work which shows that inequality and growth may be positively related.

KEYWORDS: Median Voter, Endogenous Growth, Wealth Distribution, Distributive Conflict, Redistributive Policy.

JEL Classification: D31 Personal Income and Wealth Distribution; E62: Fiscal Policy; O40 Economic Growth; P16: Political Economy of Capitalism.?

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