Working Paper: NBER ID: w3241
Authors: Larry E. Jones; Rodolfo Manuelli
Abstract: Our aim in this paper is to exposit a convex model of equilibrium growth. The model is strictly in the Solow tradition. The model has two features which distinguish it from most other work on the subject. These are, first, that the model is convex on the technological side and, eecond, that fixed fatten are explicitly included. The difference between our model and the standard single sector growth model lies in the fact that the marginal product of capital does not converge to zero as the level of inputs go to infinity. Existence and characterization results are provided along with some preliminary analyses of taxation and international trade policies. It is shown that the long-run growth rate in per capita consumption depends, in the natural way, on the parameters describing tastes and technology. Finally, it is shown that some policies have growth effects while others affect only levels. It is demonstrated that in a free trade equilibrium with taxation national growth rates of consumption and output need not converge.
Keywords: growth; equilibrium; taxation; international trade
JEL Codes: O41; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government taxation policies (H29) | Growth rates of consumption and output (E20) |
| Higher tax on capital income (F38) | After-tax rate of return (H29) |
| After-tax rate of return (H29) | Desired consumption path (D11) |
| Desired consumption path (D11) | Growth rates of consumption and output (E20) |
| Trade liberalization (F13) | Rate of return on investment (G31) |
| Trade liberalization (F13) | Prices of capital goods (E22) |
| Trade liberalization (F13) | Growth rates of consumption and output (E20) |