Journal of Economics

, Volume 62, Issue 1, pp 1–23 | Cite as

Redistributive policy, inequality and growth

  • Hans Peter Grüner
Articles

Abstract

Does redistribution increase inequality? Is inequality harmful for growth? Both questions have recently been addressed in a number of single-tax models. In this paper, I examine the relationship between policy, growth and inequality when income and inherited wealth can be taxed at different rates. In the model, parents accumulate human capital and a return-bearing, storable good in order to increase the quality of their children. Inequality arises because the learning ability of children is stochastic. Redistributive labor income taxation has a negative impact on short- and long-run growth while taxation of inherited stocks increases growth. Effects of both taxes on income inequality are ambiguous. A switch from income to inheritance taxation may increase average utility of all generations involved. I calculate a structure-induced equilibrium of the political process by means of a stochastic simulation of the model. In the short run initial wealth-inequality can stimulate growth, while initial inequality of the endowment with human capital is harmful for growth.

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Copyright information

© Springer-Verlag 1995

Authors and Affiliations

  • Hans Peter Grüner
    • 1
  1. 1.Faculty of Economics and StatisticsUniversity of KonstanzKonstanzGermany

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