Growth, income distribution, and the ‘entrepreneurial state’

Daniele Tavani and Luca Zamparelli

Journal of Evolutionary Economics, 2020, vol. 30, issue 1, No 6, 117-141

Abstract: 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 order to: (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 feedback 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 elasticity of labor productivity growth to public R&D, there exists a tax rate that maximizes the 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 spending in infrastructure; (iii) different taxation schemes can affect the stability of growth cycles.

Keywords: Public R&D; Goodwin growth cycle; Fiscal policy (search for similar items in EconPapers)
JEL-codes: D33 E11 E25 E62 O38 O41 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Growth, Income Distribution, and the ‘Entrepreneurial State’ (2017)
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DOI: 10.1007/s00191-018-0555-7

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