Bishnu, Monisankar and Ghate, Chetan and Gopalakrishnan, Pawan (2011): Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change.
Download (472kB) | Preview
We construct a model of endogenous investment specific techological change in which the stock of public capital influences the real price of capital goods. We show that the growth and welfare maximizing tax rates coincide in the planned economy. When factor income taxes finance public investment infintely many tax-subsidy combinations can decentralize the planner's allocations. The optimal capital income tax can be positive in this environment. We then augment the model to incorporate administrative costs. A unique combination of factor income taxes now decentralizes the planner's allocations. A simple calibration exercise suggests that changes in factor income taxes does not cause a significant change in the optimal growth rate or welfare. Our framework broadens the environment in which investment specific technological change occurs, and characterizes the role of optimal factor income taxation in raising long run growth and welfare.
|Item Type:||MPRA Paper|
|Original Title:||Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change|
|Keywords:||Investment Specific Technological Change; Endogenous Growth; Capital Income Taxation; Public Policy; Administrative Costs|
|Subjects:||E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
H - Public Economics > H2 - Taxation, Subsidies, and Revenue
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Chetan Ghate|
|Date Deposited:||14 Oct 2011 14:18|
|Last Modified:||13 Apr 2017 02:39|
Agénor, Pierre-Richard., January 2011. Schooling and Public Capital in a Model of Endogenous Growth, Economica, Vol. 78(309), pages 108-132.
Arrow, Kenneth J., June 1962. The Economic Implications of Learning by Doing, The Review of Economic Studies, Vol. 29(3), pages 155-173.
Barro, Robert J, October 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, Vol. 98(5), pages S103-26.
Bovenberg, A. Lans, and Goulder, Lawrence H., September 1996. Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analysis. The American Economic Review, Vol. 86(4), pages 985-1000.
Buiter, Willem H., and Sibert, Anne C., (Revised and Unpublished) May 2011. Government Budget Deficits in Large Open Economies, NBER.
Chamley, C., 1986. Optimal taxation of capital income in general equilibrium with infinite lives. Econometrica Vol. 54(3), pages 607-622.
Cummins Jason G., and Giovanni L. Violante, April 2002. Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences, Review of Economic Dynamics, Vol. 5(2), pages 243-284.
Eicher, Theo and Turnovsky, Stephen J., August 2000. Scale, Congestion and Growth, Economica, New Series, Vol. 67(267), pages 325-346.
Fisher, Walter H and Turnovsky, Stephen J., 1997. Congestion and Public Capital. Economics Series 47, Institute for Advanced Studies.
Futagami, Koichi; Morita, Yuichi and Shibata, Akihisa, December 1993. " Dynamic Analysis of an Endogenous Growth Model with Public Capital," Scandinavian Journal of Economics, Vol. 95(4), pages 607-25.
Glomm, Gerhard and Ravikumar, B., 1994. Public Investment in infrastructure in a simple growth model, Journal of Economic Dynamics and Control, Vol. 18, pages 1173-1187.
Glomm, Gerhard and Ravikumar, B., January 1997. Productive government expenditures and long-run growth, Journal of Economic Dynamics and Control, Vol. 21(1), pages 183-204.
Greenwood, Jeremy, Hercowitz, Zvi and Krusell, Per, June 1997. Long-run implications of Investment-Specific Technological Change, The American Economic Review, Vol. 87(3), pages 342-362.
Greenwood, Jeremy, Hercowitz, Zvi and Krusell, Per, 2000. The Role of Investment-Specific Technological Change in the business cycle, European Economic Review, Vol. 44 (1), pages 91-115.
Greenwood, Jeremy & Krusell, Per, May 2007. Growth accounting with investment-specific technological progress: A discussion of two approaches, Journal of Monetary Economics, Vol. 54(4), pages 1300-1310.
Gort, Michael, and Jeremy Greenwood & Peter Rupert, January 1999. Measuring the Rate of Technological Progress in Structures, Review of Economic Dynamics, Vol. 2(1), pages 207-230.
Huffman, G.W., August 2004. Propagation through endogenous investment-specific technological change, Economic Letters, Vol. 84(2), pages 191-197.
Huffman, G.W., 2007. Endogenous growth through investment-specific technological change, Review of Economic Dynamics, Vol. 10(4), 615-645.
Huffman, G.W., 2008. An analysis of fiscal policy with endogenous investment-specific technological change, Journal of Economic Dynamics and Control, Vol. 32(11), pages 3441-3458.
Judd, Kenneth L., October 1985. Redistributive taxation in a simple perfect foresight model, Journal of Public Economics, Vol. 28(1), pages 59-83.
Krusell, Per, June 1998. Investment-Specific R&D and the Decline in the Relative Price of Capital, Journal of Economic Growth, Vol. 3(2), pages 131-41.
Lucas, Robert E, Jr, April 1990. Supply-Side Economics: An Analytical Review, Oxford Economic Papers, Oxford University Press, Vol. 42(2), pages 293-316.
OECD's Current Tax Agenda, April 2011.
Perotti, Roberto, October 1993. Political Equilibrium, Income Distribution, and Growth. The Review of Economic Studies, Vol. 60(4), 755-776.
Rebelo, Sergio, June 1991. Long-Run Policy Analysis and Long-Run Growth, Journal of Political Economy, Vol. 99(3), pages 500-521.
Reis, Catarina, June 2011. Entrepreneurial Labor And Capital Taxation, Macroeconomic Dynamics, Cambridge University Press, Vol. 15(03), pages 326-335.
Rivas, Luis A., June 2003. Income taxes, spending composition and long-run growth, European Economic Review, Vol. 47(3), pages 477-503.
Stokey, N.L., and Rebelo, S., 1995. Growth Effects of Flat Taxes. The Journal of Political Economy ,Vol. 103(3), 519-550.
Schmitz Jr., James A., February 2001. Government production of investment goods and aggregate labor productivity, Journal of Monetary Economics, Vol. 47(1), pages 163-187.
Uhlig, Harald & Yanagawa, Noriyuki, November 1996. Increasing the capital income tax may lead to faster growth, European Economic Review, Vol. 40(8), pages 1521-1540.
Whelan, Karl, 2003. A Two-Sector Approach to Modeling U.S. NIPA Data, Journal of Money, Credit and Banking, Blackwell Publishing, Vol. 35(4), pages 627-56, August.
Yitzhaki, Shlomo, June 1979. "A note on Optimal Taxation and Administrative Costs", The American Economic Review, Vol. 69(3), pages 475-480.
Yang, Chin W., July-September 1989. A Note on the Musgravian Transformation. Eastern Economic Journal, Vol. XV(3).
Available Versions of this Item
- Distortionary Taxes and Public Investment in a Model of Endogenous Investment Specific Technological Change. (deposited 14 Oct 2011 14:18) [Currently Displayed]