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Optimal fiscal policy in the Uzawa-Lucas model with externalities

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  • Manuel A. Gómez

Abstract

This paper devises a fiscal policy by means of which the first-best optimum equilibrium is attained as a market equilibrium in the Uzawa-Lucas model when average human capital has an external effect on productivity. The optimal policy requires the use of a subsidy to investment in human capital which can be financed by a tax on labor income. Lump-sum taxation is not required to balance the government budget either in the steady state or in the transitional phase. Physical capital income should not be taxed. Alternatively, the optimal growth path can be attained by means of a subsidy to human capital. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Manuel A. Gómez, 2003. "Optimal fiscal policy in the Uzawa-Lucas model with externalities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(4), pages 917-925, November.
  • Handle: RePEc:spr:joecth:v:22:y:2003:i:4:p:917-925
    DOI: 10.1007/s00199-002-0331-6
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    File URL: http://hdl.handle.net/10.1007/s00199-002-0331-6
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    Citations

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    Cited by:

    1. Orlando Gomes, 2008. "Decentralized Allocation of Human Capital and Nonlinear Growth," Computational Economics, Springer;Society for Computational Economics, vol. 31(1), pages 45-75, February.
    2. Chakraborty, Bidisha & Gupta, Manash Ranjan, 2009. "Human capital, inequality, endogenous growth and educational subsidy: A theoretical analysis," Research in Economics, Elsevier, vol. 63(2), pages 77-90, June.

    More about this item

    Keywords

    Keywords and Phrases: Endogenous growth; Transitional dynamics; Optimal policy.; JEL Classification Numbers: O41; E62.;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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