Endogenous (re-)distributive policies and economic growth: A comparative static analysis

•The paper analyzes the endogeneity of policy for the growth-policy nexus.•High tax rate countries may not necessarily have lower growth.•The association between policy and growth is unclear when efficiency drives policy.•The research can be used to identify conditions for empirical research.•In the long run workers benefit more from higher efficiency than capitalists.

This paper analyzes the interplay of economic growth, (re-)distribution and policies when the latter are set exogenously or when they depend on economically important fundamentals. A redistribution policy generally causes lower growth, but less so when economic efficiency is higher. The model implies that high (endogenous) tax rates may not necessarily imply low growth. The paper shows that the long-run cross-country relationship between growth and endogenous policy is generally not clear-cut. But it is shown that this relies on conditions that can be used for identification in empirical research. The paper also argues that in the long run workers benefit more from higher efficiency than capital owners, even though inequality might and growth would rise.