Fiscal Policy in a Model of Endogenous Growth With Learning By Doing

Abstract

The goal of this article is to analyze the effects of fiscal pohcy on the steady state Abstract growth rate of an endogenous growth model, in which sustained per capita growth results from spillovers of investment in physical capital. In contrast to conventional models, however, it is assumed that investment at different dates has different weights concerning its contribution to the stock of human capital. With this assumption, it can be shown that the competitive economy may be characterized by a situation in which a decrease in the income tax rate or an increase in an investment subsidy always raises the growth rate, or by a situation with an optimal level for the income tax rate and investment subsidy, concerning maxtmum growth. Moreover, a nondis tortionary consumption tax does not influence balanced growth.