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Factor income taxation, growth, and investment specific technological change

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  • Monisankar Bishnu

    () (Indian Statistical Institute, New Delhi)

  • Chetan Ghate

    () (Indian Statistical Institute, New Delhi)

  • Pawan Gopalakrishnan

    () (Indian Statistical Institute, New Delhi)

Abstract

We construct a tractable endogenous growth model with production externalities in which the public capital stock augments investment speci?c technological change. We characterize the ?rst best ?scal policy and show that there exist several labor and capital tax-subsidy combinations that decentralize the planner?s growth rate. The optimal factor income tax mix is therefore indeterminate which gives the planner the flexibility to choose policy rules from a large set. Our model explains why many advanced economies experiencing similar growth rates have widely varying factor income tax rates.

Suggested Citation

  • Monisankar Bishnu & Chetan Ghate & Pawan Gopalakrishnan, 2013. "Factor income taxation, growth, and investment specific technological change," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 13-04, Indian Statistical Institute, New Delhi, India.
  • Handle: RePEc:ind:isipdp:13-04
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    More about this item

    Keywords

    Investment Specific Technological Change; Endogenous Growth; Factor Income Taxation; Welfare; First best fiscal policy; Indeterminacy;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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