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Fiscal policies and growth

Davide Fiaschi ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: In this work we present an endogenous growth model where the Government finances a pubblic good by imposing two taxes, one on the return of the accumlative factor and the other on the return of the not accumulative factor. In an economy where individuals have different initial factor endowments, we determine the fiscal policy that maximizes the growth rate, the poltical equilibrium and , finally, the socially optimal fiscal policy. Because of the heterogeneity of individual's endowments maximizing growth rate does not imply maximum welfare; the political equilibrium fiscal policy does not maximise the growth rate, but it could be socially optimal if the inequality aversion degree is sufficiently high.

Date: 1996-07
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