Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94730
Authors: 
Fölster , Stefan
Trofimov, Georgi
Year of Publication: 
1996
Series/Report no.: 
IUI Working Paper 461
Abstract: 
Several recent articles claim that pre-tax income equality promotes growth. Equality is argued to dampen demand for redistributive economic policies that tax returns to growth-enhancing activities such as investment. These results rest heavily on the assumption that pre-tax income equality is an exogenous parameter. We suggest that taking account of endogenous influences on pre-tax income equality changes both theoretical and empirical conclusions significantly. First, we extend previous theoretical models by letting income equality be endogenously determined. This leads to the conclusion that equality does not cause growth, although there may be a positive or negative correlation. Second, it is shown that previously reported positive empirical relationships between equality and growth turn insignificant or weakly negative when the omitted variables suggested by our model are taken into account.
Subjects: 
TAX POLICY
ECONOMIC GROWTH
INVESTMENTS
JEL: 
H20
H21
O40
O40
Document Type: 
Working Paper

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