Factor Substitution, Income Distribution and Growth in a Generalized Neoclassical Model
AbstractWe analyze a generalized neoclassical growth model that combines a normalized CES production function and possible asymmetries of savings out of factor incomes. This generalized model helps to shed new light on a recent debate concerning the impact of factor substitution and income distribution on economic growth. We show that this impact relies on both an efficiency and a distribution effect, where the latter is caused by the distributional consequences of an increase in the elasticity of substitution. While the efficiency effect is always positive, the sign of the distribution effect depends on the particular savings hypothesis. If the savings rate out of capital income is substantial so that a certain threshold value is surpassed, the efficiency effect dominates and higher factor substitution accelerates the accumulation of capital and works as a major engine of growth. Copyright 2009 The Authors. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Verein für Socialpolitik in its journal German Economic Review.
Volume (Year): 10 (2009)
Issue (Month): (November)
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Other versions of this item:
- Andreas Irmen & Rainer Klump, 2007. "Factor Substitution, Income Distribution, and Growth in a Generalized Neoclassical Model," CESifo Working Paper Series 2148, CESifo Group Munich.
- Andreas Irmen & Rainer Klump, 2007. "Factor Substitution, Income Distribution, and Growth in a Generalized Neoclassical Model," Working Papers 0453, University of Heidelberg, Department of Economics, revised Oct 2007.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Calibration of normalised CES production functions in dynamic models,"
ZEW Discussion Papers
06-78, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Working Paper Series
0367, European Central Bank.
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"The Normalized Ces Production Function: Theory And Empirics,"
Journal of Economic Surveys,
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Journal of Economic Dynamics and Control,
Elsevier, vol. 35(8), pages 1215-1228, August.
- Andreas Irmen, 2010. "Steady-State Growth and the Elasticity of Substitution," CREA Discussion Paper Series 10-21, Center for Research in Economic Analysis, University of Luxembourg.
- Irmen, Andreas, 2010. "Steady-State Growth and the Elasticity of Substitution," Working Papers 0496, University of Heidelberg, Department of Economics.
- Andreas Irmen, 2010. "Steady-State Growth and the Elasticity of Substitution," CESifo Working Paper Series 2955, CESifo Group Munich.
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