We present a general equilibrium dynamic model in which a federal authorityredistributes resources from capital-rich to capital-poor countries to financepublic services and help poorer countries to grow. We study the effects ofcommonly used federal redistributive policies on long-term growth anddynamic stability, when national fiscal authorities either choose their taxpolicies independently of each other or choose them jointly. We compare theproperties of Nash and cooperative equilibria, and show the efficiency costsand indeterminacy associated with a combination of non-coordination andfederal transfers. The efficiency costs lead to inefficiently rapid economicgrowth and indeterminacy explains income inequality in the long run.