Distortionary Taxes and Economic Growth in a Political-Economy Model of a Creative Region

Batabyal, Amitrajeet and Beladi, Hamid (2024): Distortionary Taxes and Economic Growth in a Political-Economy Model of a Creative Region.

Abstract

We analyze a stylized creative region populated by three groups of individuals: the elites who hold political and taxing power, the entrepreneurial creative class that produces a knowledge good, and workers. Political competition between the elites and the creative class results in the elites levying distortionary taxes on the creative class. We provide a rationale for this kind of taxation and then present two results. First, we demonstrate that this kind of distortionary taxation reduces the equilibrium growth rate of the economy of our creative region. Second, we explain why this negative result arises.

• Item Type: MPRA Paper
• Language: English
• Keywords: Creative Class, Distortionary Tax, Elite, Political Competition
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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