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Distributive Conflict, Growth, and the ‘Entrepreneurial State’

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  • Daniele Tavani

    (Department of Economics, Colorado State University.)

  • Luca Zamparelli

    (Department of Social Sciences and Economics, Sapienza University of Rome)

Abstract

In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) growth cycle model. The government collects income taxes in order to: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly funded research, which augments the growth rate of labor productivity. We first focus on a special case in which labor productivity growth depends entirely on public research, and show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticity of labor productivity growth to public R&D, there exists a tax rate tau* that maximizes the long-run labor share, but not a growth-maximizing tax rate; (ii) the long-run labor share is always increasing in the share of public spending in infrastructure, and (iii) the presence of public R&D is not enough to stabilize the distributive conflict. We then study a more general model with induced technical change where, as is well known in the literature, the distributive conflict is resolved in the long run. With induced technical change: (iv) the labor share-maximizing tax rate is the same as in the special case; (v) the long-run share of labor is always increasing in the share of public spending in infrastructure, and (vi) maximizing growth requires to levy a tax rate in excess of tau*.

Suggested Citation

  • Daniele Tavani & Luca Zamparelli, 2016. "Distributive Conflict, Growth, and the ‘Entrepreneurial State’," Working Papers 6/16, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:6/16
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    References listed on IDEAS

    as
    1. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    2. Luca Spinesi, 2013. "Academic and industrial R&D: are they always complementary? A theoretical approach," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 147-172, January.
    3. Daniele Tavani, 2013. "Bargaining over productivity and wages when technical change is induced: implications for growth, distribution, and employment," Journal of Economics, Springer, vol. 109(3), pages 207-244, July.
    4. Daniele Tavani & Luca Zamparelli, 2013. "Endogenous Technical Change, Employment and Distribution in the Goodwin Model," IMK Working Paper 127-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Public R&D; Goodwin growth cycle; optimal fiscal policy.;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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