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Output externalities on total factor productivity

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  • DAVILA, Julio

    (Université catholique de Louvain, CORE, Belgium)

Abstract

The impact that output has on future total factor productivity —i.e. the dynamic complementarities shown to be empirically relevant in Cooper and Johri (1997)— is not internalized by competitive agents. As a result, the allocation that a planner would choose cannot be reached as a competitive equilibrium outcome (neither for infinitely-lived agents nor for overlapping generations): the market return to savings and wage rate are too low. The planner’s allocation can nonetheless be implemented by a fiscal policy subsidizing as needed the returns to savings and the wage rate. The exact policy differs depending on whether just past investment or total output influences productivity: in the first case only capital returns need to be subsidized, while in the second case labor income needs to be subsidized too. The policy is balanced period-by-period by means of a lump-sum tax.

Suggested Citation

  • DAVILA, Julio, 2014. "Output externalities on total factor productivity," LIDAM Discussion Papers CORE 2014037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2014037
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    References listed on IDEAS

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    1. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9781107001411, Enero-Abr.
    2. Hindriks, Jean & Myles, Gareth D., 2013. "Intermediate Public Economics," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262018691, December.
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    2. Julio Dávila, 2023. "Bequests or education," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1039-1069, May.

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