Financial Deepening in a Two-Sector Endogenous Growth Model with Productivity Heterogeneity

Quoc Hung Nguyen

MPRA Paper from University Library of Munich, Germany

Abstract: We develop a tractable two-sector endogenous growth model in which heterogeneous entrepreneurs face borrowing constraints and the government collects tax to fund public eduction. This model is isomorphic to a Uzawa-Lucas model and there exists a balanced-growth path equilibrium in which the growth rate depends on the financial deepening level. We show that the policy tax rate exerts inverted U-shaped effects on the growth rate. Additionally, at the optimal policy tax rates the model's predictions are consistent with correlational regularities documented from 35 OECD countries with regards to financial deepening, factor accumulation and working hours.

Keywords: Heterogeneity; Financial Deepening; Endogenous Growth (search for similar items in EconPapers)
JEL-codes: E10 E22 E44 O16 (search for similar items in EconPapers)
Date: 2018-04-02
New Economics Papers: this item is included in nep-cfn, nep-dge, nep-ent, nep-fdg, nep-gro and nep-mac
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Related works:
Journal Article: Financial deepening in a two-sector endogenous growth model with productivity heterogeneity (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:88328

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