Growth and income distributions in the Europen Union

Dynamic multi-sectoral and multi-household general equilibrium models are constructed to show how economies of Germany, France, Spain and the UK will evolve from 2006 to 2090. Such micro-founded macroeconomic analysis has become more important after the financial crises of 2008 that resulted in the largest recession after 1930. These models should generate not only the dynamic paths of the investment and accumulations of capital but also the levels of production among all sectors as well as the distribution of consumption and welfare of households.  Whilst the relative prices of goods and services in the decentralised economies are central to the patterns of revenue and expenditure of the public sectors, the flows of exports, imports and net trade balances and financial sector accounts should be consistent with the dynamic balanced growth conditions in these economies. Computations of models show that the inequalities in the distribution of income among households will not decrease but widen if the current policies continue in all four countries. These economies tend to converge in the patterns of inequality and justify further investment in education and skills. These issues have become even more important given the debates on policy coordination for the fiscal and financial sector unification in Europe and in or out from the EU referendum being contemplated in the UK by 2017. Whether the welfare maximising income and commodity tax rates, optimal for one country are also optimal for another country, or, what are the costs of adjustments towards such optimal tax rates if they are not, are issues analysed in greater details linking dynamic economics to the set of policy instruments available for greater integration or coordination.