DP633 Distributional Conflicts, Power and Multiple Growth Paths

Author(s): Gilles Saint-Paul, Thierry Verdier
Publication Date: February 1992
Keyword(s): Capital Flight, Distributional Conflict, Endogenous Growth, Political Equilibrium
JEL(s): E21, E62, H21, H31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=633

This paper shows that multiple growth paths may occur in a politico-economic model of endogenous growth. This multiplicity is characterized by the coexistence of a low-tax, low-capital-flight equilibrium and a high-tax, high-capital-flight equilibrium. The likelihood of multiplicity is crucially related to the structure of power in society. For multiplicity to arise, it is necessary that the group in power (or the group that is decisive in determining the political outcome) has greater access to international capital markets than the average in the economy. The model provides an example of an inefficient allocation resulting from majority voting among rational agents.