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Growth, Income Distribution, and the ‘Entrepreneurial State’

Author

Listed:
  • Daniele Tavani

    () (Department of Economics, Colorado State University)

  • Luca Zamparelli

    () (Department of Social Sciences and Economics, Sapienza University of Rome)

Abstract

In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) model of the growth cycle. The government collects income taxes in order to: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly funded research and development (R&D), which augments the growth rate of labor productivity. We study two versions of the model: with and without induced technical change, that is with or without a feedback from the labor share to labor productivity growth. In both cases we show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticity of labor productivity growth to public R&D, there exists a tax rate that maximizes the long-run labor share, and it is smaller than the growth-maximizing tax rate; (ii) the longrun share of labor is always increasing in the share of public spending in infrastructure; (iii) different taxation schemes have an impact on the stability of growth cycles.

Suggested Citation

  • Daniele Tavani & Luca Zamparelli, 2017. "Growth, Income Distribution, and the ‘Entrepreneurial State’," Working Papers 1711, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1711
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    File URL: http://www.economicpolicyresearch.org/econ/2017/NSSR_WP_112017.pdf
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    More about this item

    Keywords

    Public R&D; Goodwin growth cycle; fiscal policy;

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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