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Taxation In The Two-Sector Neoclassical Growth Model With Sector-Specific Externalities And Endogenous Labour Supply

Author

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  • Daisuke Amano
  • Jun-Ichi Itaya

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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Suggested Citation

  • Daisuke Amano & Jun-Ichi Itaya, 2013. "Taxation In The Two-Sector Neoclassical Growth Model With Sector-Specific Externalities And Endogenous Labour Supply," The Japanese Economic Review, Japanese Economic Association, vol. 64(2), pages 248-275, June.
    • Handle: RePEc:bla:jecrev:v:64:y:2013:i:2:p:248-275
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    File URL: http://hdl.handle.net/10.1111/jere.2013.64.issue-2
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    Cited by:

    1. Kazuo Mino, 2016. "Fiscal Policy in a Growing Economy with Financial Frictions and Firm Heterogeneity," The Japanese Economic Review, Springer, vol. 67(1), pages 3-30, March.

    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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