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A Note on Commodity Taxation and Economic Growth

Kunihiko Konishi ()
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Kunihiko Konishi: Graduate School of Economics, Osaka University

No 13-22, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This note reexamines the growth effects of commodity taxation and a manufacturing subsidy. By incorporating endogenous labor supply into a variety expansion model following Grossman and Helpman (1991), we derive new results. First, if households consider leisure to be important, an increase in the commodity tax rate can decrease the growth rate in the short run. Second, a small elasticity of substitution and a small manufacturing subsidy halt economic growth. Third, when the elasticity of substitution is small and sustained growth is possible, a decrease in the subsidy raises the short-run growth rate and decreases the long-run growth rate.

Keywords: Commodity taxation; Subsidy; Labor supply; Endogenous growth (search for similar items in EconPapers)
JEL-codes: E62 O41 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2013-09
New Economics Papers: this item is included in nep-acc, nep-fdg, nep-mac, nep-pbe and nep-pub
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