 Endogenous Growth Through Investment-Specific Technological ChangeNo 218, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics Abstract: This paper examines a model in which growth takes place through investment-specific technological change, which in turn is determined endogenously through research spending. In particular, the role of the degree of substitutability between research spending and new capital construction is explored. It is shown that the effect of a change in the capital tax rate on the growth rate can depend on the degree of substitability between research spending and new capital construction. Research subsidies tend to have a larger impact on the growth rate than would an investment tax credit of the same magnitude. Increases in the capital tax rate can increase the growth rate of the economy, even in the absence of externalities. The welfare cost of capital taxation in this model can be negligible. There may be multiple tax rates on capital that achieve the same growth rates. It is demonstrated that in the presence of certain types of positive externalities, the optimal growth rate can be attained through the use of capital taxes -- rather than subsidies. Keywords: Growth; investment-specific technological change; research spending; taxation; welfare costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0218 Access Statistics for this paper More papers in Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics Contact information at EDIRC. |
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