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Growth and Welfare Effects of Stabilizing Innovation Cycles

Listed author(s):
  • 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
Handle: RePEc:san:cdmawp:0705
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  9. Shleifer, Andrei, 1986. "Implementation Cycles," Journal of Political Economy, University of Chicago Press, vol. 94(6), pages 1163-1190, December.
  10. Crafts, Nicholas, 1999. "Implications of Financial Crisis for East Asian Trend Growth," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 110-131, Autumn.
  11. Grandmont, Jean-Michel, 1986. "Stabilizing competitive business cycles," Journal of Economic Theory, Elsevier, vol. 40(1), pages 57-76, October.
  12. Kiminori Matsuyama, 1999. "Growing Through Cycles," Econometrica, Econometric Society, vol. 67(2), pages 335-348, March.
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  14. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, September.
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