Why progressive redistribution can hurt the poor
Journal
Journal of Public Economics
ISSN
0047-2727
ISSN-Digital
1879-2316
Type
journal article
Date Issued
2008-04-01
Author(s)
Abstract (De)
Recent macroeconomic research discusses credit market imperfections as a key channel through which inequality retards growth: With convex technologies, progressive transfers increase aggregate output because marginal returns become more equalized across investment opportunities. We argue that this reasoning may not hold in general equilibrium. Since the investment functions are concave in wealth, reducing inequality increases capital demand and the interest rate. Hence, through the impact on capital costs, shifting wealth from the rich to the middle class depletes the poorest investors' access to credit. But because the poor face the highest marginal returns, the net effect on output may be negative. We find, however, that redistributing towards the bottom-end of the distribution has a clear positive impact. Finally, we discuss the implications of our theoretical findings for future empirical research.
Language
German
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Elsevier
Publisher place
Amsterdam
Volume
92
Number
3-4
Start page
738
End page
747
Pages
10
Subject(s)
Eprints ID
184828