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Growth and Welfare Effects of Stabilizing Innovation Cycles

  • Marta Aloi

    ()

  • Laurence Lasselle

    ()

We consider a simple model of innovation where equilibrium cycles may arise and show that, whenever actual capital accumulation falls below its balanced growth path, subsidizing innovators by taxing consumers has stabilizing effects, promotes sustained growth and increases welfare. Further, if the steady state is unstable under laissez faire, the introduction of the subsidy can make the steady state stable. Such a policy has beneficial effects as it fosters output growth along the transitional adjustment path, and increases the welfare of current and future generations.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp0705.pdf
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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200705.

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Date of creation: 15 Jan 2007
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Handle: RePEc:san:cdmawp:0705
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  1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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  7. Crafts, Nicholas, 1999. "Implications of Financial Crisis for East Asian Trend Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 110-31, Autumn.
  8. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  10. Grandmont Jean-michel, 1985. "Stabilizing competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8518, CEPREMAP.
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  13. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  14. Marta Aloi & Teresa Lloyd-Braga & Hans Jørgen Whitta-Jacobsen, 2002. "Endogenous Business Cycles and Systematic Stabilization Policy," EPRU Working Paper Series 02-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  15. Lawrence J. Christiano & Sharon G. Harrison, 1996. "Chaos, Sunspots, and Automatic Stabilizers," NBER Working Papers 5703, National Bureau of Economic Research, Inc.
  16. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, June.
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