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Growth and Welfare Effects of Stabilizing Innovation Cycles

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  • Marta Aloi

    ()

  • Laurence Lasselle

    ()

Abstract

We consider a simple model of innovation where equilibrium cycles may arise and show that, whenever actual capital accumulation falls below its balanced growth path, subsidizing innovators by taxing consumers has stabilizing effects, promotes sustained growth and increases welfare. Further, if the steady state is unstable under laissez faire, the introduction of the subsidy can make the steady state stable. Such a policy has beneficial effects as it fosters output growth along the transitional adjustment path, and increases the welfare of current and future generations.

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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200705.

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Date of creation: 15 Jan 2007
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Handle: RePEc:san:cdmawp:0705

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Keywords: Growth; endogenous cycles; stabilization; innovation; subsidy; welfare.;

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Cited by:
  1. Bei Li & Jie Zhang, 2011. "Subsidies in an Economy with Endogenous Cycles Over Neoclassical Investment and Neo-Schumpeterian Innovation Regimes," Economics Discussion / Working Papers 11-23, The University of Western Australia, Department of Economics.

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