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Barriers to Reallocation and Economic Growth: the Effects of Firing Costs

Toshihiko Mukoyama () and Sophie Osotimehin

No gueconwpa~18-18-02, Working Papers from Georgetown University, Department of Economics

Abstract: We study how factors that hinder the reallocation of inputs across firms influence aggregate productivity growth. We extend Hopenhayn and Rogerson's (1993) general equilibrium firm dynamics model to allow for endogenous innovation. We calibrate the model using US data, and then evaluate the effects of firing taxes on reallocation, innovation, and aggregate productivity growth. In our baseline specification, we find that firing taxes reduce overall innovation and productivity growth. We also show that firing taxes can have opposite effects on the entrants' innovation and the incumbents' innovation, and thus the overall outcome depends on the relative strengths of these forces.

Keywords: Innovation; R&D; Reallocation; Firing costs (search for similar items in EconPapers)
JEL-codes: E24 J24 J62 O31 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-eff, nep-ent, nep-gro, nep-ino, nep-lma, nep-mac and nep-sbm
Date: 2018-08-13
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Citations: View citations in EconPapers (4) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:geo:guwopa:gueconwpa~18-18-02

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Roger Lagunoff Professor of Economics Georgetown University Department of Economics Washington, DC 20057-1036
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