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The impact of public goods and services and public R&D on the non-observed economy size, wages inequality and growth

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  • Afonso, Oscar

Abstract

We develop a general equilibrium endogenous growth model in which final goods can be produced either in the Non-Observed Economy (NOE) or in the Official Economy (OE). In particular, by solving transitional dynamics numerically towards the unique and stable steady state, we show that, by affecting the technological-knowledge bias in favour of the OE, productive public goods and services and public policies promoting R&D explain the simultaneous rise in the OE size, the wage premium in favour of OE workers and the economic growth rate. These results are mainly in line with empirical evidence for developed countries, since the 1990s.

Suggested Citation

  • Afonso, Oscar, 2012. "The impact of public goods and services and public R&D on the non-observed economy size, wages inequality and growth," Economic Modelling, Elsevier, vol. 29(5), pages 1996-2004.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1996-2004
    DOI: 10.1016/j.econmod.2012.06.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Public goods and services; Public R&D policies; Non-observed economy; Technological knowledge; Wages; Economic growth;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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