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Growth, Income Distribution, and the ‘Entrepreneurial State’

Daniele Tavani and Luca Zamparelli ()

No 1711, Working Papers from New School for Social Research, Department of Economics

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 longrun share of labor is always increasing in the share of public spending in infrastructure; (iii) different taxation schemes have an impact on the stability of growth cycles.

Keywords: Public R&D; Goodwin growth cycle; fiscal policy (search for similar items in EconPapers)
JEL-codes: D33 E11 O38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gro, nep-ino, nep-mac and nep-pke
Date: 2017-03
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http://www.economicpolicyresearch.org/econ/2017/NSSR_WP_112017.pdf First version, 2017 (application/pdf)

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