Distributional Conflict, Political Cycles and Growth

This paper discusses the emergence of endogenous redistributive cycles in a stochastic growth model with incomplete asset markets and heterogeneous agents who vote on the degree of progressivity in the tax-transfer scheme. The model draws from Benabou (in B.S. Bernanke and J.J. Rotemberg (eds), NBER Macroeconomics Annual, Vol. 11, Cambridge, MA, MIT Press, pp. 11-74) and ties the bias in the distribution of political power to the degree of inequality in the society, thereby triggering redistributive cycles which then give rise to a nonlinear, cyclical pattern of savings rates, growth and inequality over time