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Taxation in the Two-Sector Neoclassical Growth Model with Sector-Specific Externalities and Endogenous Labor Supply

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  • Amano, Daisuke
  • Itaya, Jun-ichi
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    Abstract

    This paper examines the long-run impacts of selective (sector-specific) commodity, payroll and profit taxes in a two-sector endogenous growth model with sector-specific production externalities, in which one sector produces consumption goods and the other produces investment goods. The novelty of the model is that it allows not only for endogenous labor supply (which may lead to indeterminacy) but also for the intersectional allocation of labor. We analytically show that the long-run effects of these selective taxes are closely related to the possible emergence of the indeterminacy of equilibria, which may reverse the standard results of the growth effects of distortionary taxes.

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    File URL: http://hdl.handle.net/2115/43304
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    File URL: http://eprints.lib.hokudai.ac.jp/dspace/bitstream/2115/43304/1/DPA225.pdf
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    Bibliographic Info

    Paper provided by Graduate School of Economics and Business Administration, Hokkaido University in its series Discussion paper series. A with number 225.

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    Length: 36 pages
    Date of creation: Jun 2010
    Date of revision:
    Handle: RePEc:hok:dpaper:225

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    Related research

    Keywords: Selective tax; Two-sector model; Endogenous growth; Production externalities; Indeterminacy; Endogenous labor supply; H22; J22; O41;

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