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The Importance of Industrial Policy in Quality-Ladder Growth Models

  • Giordani Paolo E

    ()

    (European University Institute and LUISS Guido Carli)

  • Zamparelli Luca

    ()

    (The University of Rome ‘La Sapienza’ and The New School for Social Research)

We extend the class of quality-ladder growth models (Grossman and Helpman, 1991, Segerstrom, 1998 and others), to encompass an economy with asymmetric fundamentals. In contrast to the standard framework, in our model industries may differ in terms of their innovative potential (quality jumps and arrival rates) and consumers' preferences. This extension allows us to bring industrial policy back into the realm of the growth policy debate. We first show that it is always possible to raise the long-run growth rate and the social welfare of the economy through a costless tax/subsidy scheme reallocating resources towards the relatively more promising industries. We then prove that, in certain economies, even a mere profit taxation policy increases economic growth and social welfare above the laissez-faire.

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Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 8 (2008)
Issue (Month): 1 (January)
Pages: 1-30

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Handle: RePEc:bpj:bejmac:v:8:y:2008:i:1:n:1
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  1. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  2. Chol-Won Li, 1998. "Endogenous Growth Without Scale Effects: Comment," Working Papers 9819, Business School - Economics, University of Glasgow.
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  5. Smulders, J.A. & van de Klundert, T.C.M.J., 1995. "Imperfect competition, concentration and growth with firm-specific R&D," Other publications TiSEM 3287368d-bf5d-421a-91c1-e, Tilburg University, School of Economics and Management.
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  8. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  9. Jones, Charles I, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 495-525, May.
  10. Guido Cozzi & Giammario Impullitti, . "Technology Policy and Wage Inequality," Working Papers 2008_23, Business School - Economics, University of Glasgow, revised Oct 2006.
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