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Innovation Dynamics and Fiscal Policy: Implications for Growth, Asset Prices, and Welfare

Michael Donadelli and Patrick Grüning

No 43, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: We study the general equilibrium implications of different fiscal policies on macroeconomic quantities, asset prices, and welfare by utilizing two endogenous growth models. The expanding variety model features only homogeneous innovations by entrants. The Schumpeterian growth model features heterogeneous innovations: "incremental" innovations by incumbents and "radical" innovations by entrants. The government levies taxes on labor income and corporate profits and supplies subsidies to consumption, capital investment, and investments in research and development by entrants and, if applicable, incumbents. With these models at hand, we provide new insights on the interplay of innovation dynamics and fiscal policy.

Keywords: Endogenous growth; Asset pricing; Government; Fiscal policy; Heterogeneous innovation (search for similar items in EconPapers)
JEL-codes: E22 G12 H20 I30 O30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ino, nep-mac and nep-pbe
Date: 2017-04-03
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Working Paper: Innovation dynamics and fiscal policy: Implications for growth, asset prices, and welfare (2017) Downloads
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