2007/03/01 by Cecilia Garcı́a-Peñalosa, Stephen J. Turnovsky · 1 citation
Economics, Econometrics and Finance · #Fiscal Policy and Economic Growth #Economic Growth and Productivity #Economic theories and models
paper · pdf · doi:10.1111/j.0022-2879.2007.00029.x
openalex publication_date 2007/03/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
We develop an endogenous growth model with elastic labor supply, in which agents differ in their initial endowments of physical capital. In this context, the growth rate and the distribution of income are jointly determined. We then examine the distributional impact of different ways of financing an investment subsidy. Policies aimed at increasing the growth rate result in a more unequal distribution of pre‐tax income, consistent with the positive correlation between income inequality and growth observed in the recent empirical literature. However, there is no conflict between efficiency and equity if inequality is measured in terms of the distribution of welfare.