Sustained Economic Growth and Physical Capital Taxation in a Creative Region

Amitrajeet Batabyal and Hamid Beladi

MPRA Paper from University Library of Munich, Germany

Abstract: We study the properties of economic growth in a region that is driven by the activities of the so-called creative class. On the consumption side of our regional economy, we focus on an infinitely lived creative class household and on the production side of this same economy, we concentrate on a final good that is produced using creative and physical capital. In this setting, we first define and then characterize a competitive equilibrium for our regional economy. Second, we show that this competitive equilibrium is Pareto optimal. Third, we demonstrate that sustained growth in this regional economy is impossible when the value of a key parameter of the production function is less than or equal to unity. Fourth, we specify the conditions in our model that need to hold for there to be sustained economic growth. Fifth, we study what happens to the share of physical capital in our region’s total income. Finally, we analyze what happens to the asymptotic growth rate of physical capital and consumption when a regional authority taxes the returns from physical capital.

Keywords: Capital Tax; Creative Class; Economic Growth; Pareto Optimality; Sustained Growth (search for similar items in EconPapers)
JEL-codes: H22 O40 R11 (search for similar items in EconPapers)
Date: 2022-06-15, Revised 2022-07-17
New Economics Papers: this item is included in nep-geo, nep-gro and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:113899

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