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Economic Growth and Welfare in a Simple Neoclassical OLG Model with Minimum Wage and Consumption Taxes support

Luciano Fanti () and Luca Spataro

Discussion Papers from Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy

Abstract: In this paper we show that the neoclassical standard OLG growth model, under low substitution in preferences and technology, may generate three stable steady states. In particular we show the richness of the dynamical roles played by the intertemporal substitution parameter. The novelty of our work is that a three stable equilibria world may exist, which allows to reinterpret in a new light the evidence of three groups of countries: underdeveloped, developing and developed. Our theoretical results may have far-reaching implications on the debate on convergence, on the corresponding growth empirics and on the policies for escaping from poverty traps.

Keywords: poverty traps; elasticity of substitution; OLG model (search for similar items in EconPapers)
JEL-codes: D51 D9 O12 (search for similar items in EconPapers)
Date: 2007-01-01
Note: ISSN 2039-1854
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