Output externalities on total factor productivity

Julio Dávila

No 2014037, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: The impact that output has on future total factor productivity —i.e. the dynamic complementarities shown to be empirically relevant in Cooper and Johri (1997)— is not internalized by competitive agents. As a result, the allocation that a planner would choose cannot be reached as a competitive equilibrium outcome (neither for infinitely-lived agents nor for overlapping generations): the market return to savings and wage rate are too low. The planner’s allocation can nonetheless be implemented by a fiscal policy subsidizing as needed the returns to savings and the wage rate. The exact policy differs depending on whether just past investment or total output influences productivity: in the first case only capital returns need to be subsidized, while in the second case labor income needs to be subsidized too. The policy is balanced period-by-period by means of a lump-sum tax.

Date: 2014-11-05
New Economics Papers: this item is included in nep-dge and nep-eff
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Related works:
Journal Article: OUTPUT EXTERNALITIES ON TOTAL FACTOR PRODUCTIVITY (2017)
Working Paper: Output externalities on total factor productivity (2017)
Working Paper: OUTPUT EXTERNALITIES ON TOTAL FACTOR PRODUCTIVITY (2017)
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