Business Intelligence

The Tradeoff Between Growth And Redistribution: Elie In An Overlapping Generations Model

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Executive Summary

The ELIE scheme of Kolm taxes labor capacities instead of labor income in order to circumvent the distortionary effect of taxation on labor supply. Still, Kolm does not study the impact of ELIE on human capital formation and investment. In this paper, the authors build an Overlapping Generations (OLG) model with heterogeneous agents and endogenous growth driven by investment in human capital. They study the effect of ELIE on education investment and other aggregate economic variables. Calibrating the model to French data, they highlight a trade-off between growth and redistribution. With a perfect credit market, ELIE is successful in reducing inequalities and poverty, but it is at the expense of lower investment in education and slower growth.

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