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Public Goods, Redistribution, and Growth: A Classical Model

Daniele Tavani and Luca Zamparelli ()

No 10/14, Working Papers from Sapienza University of Rome, DISS

Abstract: We extend the basic Classical growth model by introducing a productive and redistributive role for the public sector in an economy populated by two classes, workers (who supply labor, consume, and do not save) and capitalists (who own capital stock, consume and save). The government levies a tax on profits in order to: (i) finance the provision of a public good that augments the production possibilities of the economy, and (ii) integrate labor incomes through a transfer to workers. Following Michl (2009), we focus on two different model ‘closures’, which deliver an endogenous and an exogenous growth rate respectively. In both cases, the analysis of taxation and government spending composition between public goods and transfers requires to specify the government’s preferences. In the endogenous growth model, the government’s choice fixes long-run growth and income distribution. In the exogenous growth model, policy decisions determine income distribution and the employment rate.

Keywords: Classical growth; functional distribution; redistributive 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-fdg, nep-gro, nep-mac and nep-pbe
Date: 2014-10
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