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Optimal taxation in the Uzawa-Lucas Model with externality in human capital

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  • Arantza Gorostiaga

    ()
    (Dpto. Fundamentos del Análisis Económico II)

  • Jana Hromcová

    ()
    (Universitat de Girona)

  • Miguel Ángel López García

    ()
    (Dpt. Economia Aplicada)

Abstract

We show that in the Uzawa-Lucas model with externality in human capital with agents that value both consumption and leisure, the government pursuing the first best can achieve its goal by subsidizing the foregone earnings while studying. The subsidy should be financed by a schooling fee. We obtain that countries with similar initial conditions may issue different fees because multiple equilibria can arise for empirically plausible values of parameters. This result differs from the one obtained in ananalogous economy where agents only value consumption.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2011-19.pdf
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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2011-19.

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Length: 19 pages
Date of creation: Sep 2011
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2011-19

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Keywords: optimal policy; two-sector model; endogenous growth; indeterminacy.;

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  1. Boucekkine, R. & Ruiz-Tamarit, J.R., 2008. "Special functions for the study of economic dynamics: The case of the Lucas-Uzawa model," Journal of Mathematical Economics, Elsevier, vol. 44(1), pages 33-54, January.
  2. Caballe, Jordi & Santos, Manuel S, 1993. "On Endogenous Growth with Physical and Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1042-67, December.
  3. Chamley, Christophe, 1993. "Externalities and Dynamics in Models of "Learning or Doing."," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(3), pages 583-609, August.
  4. Dirk Bethmann, 2007. "A Closed-form Solution of the Uzawa-Lucas Model of Endogenous Growth," Journal of Economics, Springer, vol. 90(1), pages 87-107, January.
  5. Antonio Ladron de Guevara & Salvador Ortigueira & Manuel Santos, 1995. "A Two-Sector Model of Endogenous Growth with Leisure," Working Papers 9503, Centro de Investigacion Economica, ITAM.
  6. Manuel Gómez, 2004. "Optimality of the competitive equilibrium in the Uzawa-Lucas model with sector-specific externalities," Economic Theory, Springer, vol. 23(4), pages 941-948, May.
  7. Mulligan, C.B. & Sala-i-Martin, X., 1992. "Transitional Dynamics in Two-Sector Models of Endogenous Growth," Papers 651, Yale - Economic Growth Center.
  8. Benhabib Jess & Perli Roberto, 1994. "Uniqueness and Indeterminacy: On the Dynamics of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 63(1), pages 113-142, June.
  9. Ben-Gad, Michael, 2003. "Fiscal policy and indeterminacy in models of endogenous growth," Journal of Economic Theory, Elsevier, vol. 108(2), pages 322-344, February.
  10. Pedro Garcia-Castrillo & Marcos Sanso, 2000. "Human Capital and Optimal Policy in a Lucas-type Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 757-770, October.
  11. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
  12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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Cited by:
  1. Neustroev, Dmitry, 2013. "The Uzawa-Lucas Growth Model with Natural Resources," MPRA Paper 52937, University Library of Munich, Germany.

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