Growth, Learning and Redistributive Policies

This paper develops an endogenous growth model with redistributive taxation in which the growth rate of the economy affects the agents' preferences over redistributive policies, and therefore, the equilibrium level of taxation. The main mechanism through which the growth rate affects policy preferences is by changing the ability of the agents to learn their positions in the future distribution of incomes. The main result of the paper is that during periods of growth, the society opts for less taxation and less redistribution. The model also predicts that growing economies are characterized by higher inequality in the distribution of income and by greater mobility of agents within income classes over time.