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Share Ownership Distribution and Economic Performance: A Political Economy Approach

Objective



Research objectives and content

Traditional macroeconomic theory has abstracted from distributional issues, i.e. the distribution of wealth among the individuals in the economy as well as the distribution of ownership of firms. Recent theoretical and empirical work has suggested that these issues are important for macroeconomic performance such as economic growth, production, employment and ultimately efficiency and welfare. The reason why distributional issues are believed to be important is the recognition of the political process in policy making. The link is as follows: government policy affects macroeconomic variables; government policy is determined by politicians who in turn are elected. The voting outcome depends on macroeconomic variables as well as the distribution of wealth sent the political process there would be no reason to suspect that distributional issues have effect on macroeconomic variables. Thus, the political economy approach is important in analysing these issues. In this project we focus on the share-ownership distribution. In general equilibrium, if firms were imperfectly competitive, shareholders would disagree upon the production plan of the firm, depending on their endowments. The reason is that an imperfectly competitive firm can affect the prices in the economy and thereby accomplish redistribution among individuals. In this way the distribution of shares affects the macroeconomic equilibrium. First we will develop a dynamic general equilibrium model of monopolistic competition to analyse how the distribution of shares affect the long-run macroeconomic performance and distribution of capital. Next we will use the same framework to study economic policy, namely taxation. Also we will examine ways of altering the composition of the individuals' portfolios. Finally, we will determine the quantitative effects of the distribution of shares, on welfare and growth.

Training content (objective, benefit and expected impact)

The project I plan to carry out requires computation and simulation techniques. At the CentER there is a lot of expertise regarding these techniques. The benefit at the CentER is training in political economy and computation and simulation. Also the access to software and date is invaluable for my project. The training will not only impacting on the present research, but will certainly help for future research projects.

Links with industry / industrial relevance (22)

Funding Scheme

RGI - Research grants (individual fellowships)

Coordinator

TILBURG UNIVERSITY
Address
Warandelaan 2
5037 AB Tilburg
Netherlands