In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) model of the growth cycle. The government collects income taxes in orderto: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly-funded research and development (R&D),which augments the growth rate of labor productivity. We study two versions of the model, with and without induced technical change; that is, with or without a feed-back from the labor share to labor productivity growth. In both cases we show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticityof labor productivity growth to public R&D, there exists a tax rate that maximizesthe long-run labor share, and it is smaller than the growth-maximizing tax rate; (ii) the long-run share of labor is always increasing in the share of public spendingin infrastructure; (iii) different taxation schemes can affect the stability of growth cycles.

Growth, income distribution, and the ‘entrepreneurial state’ / Tavani, Daniele; Zamparelli, Luca. - In: JOURNAL OF EVOLUTIONARY ECONOMICS. - ISSN 1432-1386. - ELETTRONICO. - (2018), pp. 1-25. [10.1007/s00191-018-0555-7]

Growth, income distribution, and the ‘entrepreneurial state’

Tavani, Daniele;Zamparelli, Luca
2018

Abstract

In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) model of the growth cycle. The government collects income taxes in orderto: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly-funded research and development (R&D),which augments the growth rate of labor productivity. We study two versions of the model, with and without induced technical change; that is, with or without a feed-back from the labor share to labor productivity growth. In both cases we show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticityof labor productivity growth to public R&D, there exists a tax rate that maximizesthe long-run labor share, and it is smaller than the growth-maximizing tax rate; (ii) the long-run share of labor is always increasing in the share of public spendingin infrastructure; (iii) different taxation schemes can affect the stability of growth cycles.
File allegati a questo prodotto
File Dimensione Formato  
Tavani_Growth_2018.pdf

solo gestori archivio

Tipologia: Versione editoriale (versione pubblicata con il layout dell'editore)
Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 912.01 kB
Formato Adobe PDF
912.01 kB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1072495
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 8
  • ???jsp.display-item.citation.isi??? 7
social impact