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Optimal Wealth Taxation in the Schumpeterian Growth Model with Unemployment

Ryoji Hiraguchi

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: In this paper, we construct a Schumpeterian endogenous growth model, taking into account unemployment, and study the effect of wealth tax policy on the employment and the growth rate. In our model, the final good firms use labor and intermediate goods as input. The firms search and match with workers in a frictional labor market. The wage rate is determined by Nash bargaining. We first show that there may be one or two balanced growth paths in the model. We next show that when the equilibrium path is uniquely determined, the reduction of the bargaining power of the worker reduces the balanced growth rate and raises unemployment. We finally show that the wealth tax can enhance innovation, reduce unemployment and raise the economic growth rate. The welfare-maximizing wealth tax rate is generally non-zero, and for some plausible parameter values, the rate is strictly positive.

Pages: 21 pages
Date: 2021-07
New Economics Papers: this item is included in nep-gro and nep-pbe
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Handle: RePEc:eti:dpaper:21056