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An analysis of the importance of both destruction and creation to economic growth

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  • Huffman, Gregory W.

Abstract

A growth model is studied in which the destruction (or exit) and creative (or research) decisions are decoupled. This approach emphasizes that different agents make these interrelated decisions. The growth rate equals the product of a measure of the destruction and creation rates. The determinants of income mobility, income inequality, the lifespan of a firm, and the growth rate are studied. The equilibrium can either yield too high or low a level of innovation, but the destruction rate may also be too high or low. A non-linear tax/subsidy scheme, which alters the innovation and exit decisions, can improve welfare.

Suggested Citation

  • Huffman, Gregory W., 2020. "An analysis of the importance of both destruction and creation to economic growth," Journal of Monetary Economics, Elsevier, vol. 116(C), pages 166-183.
    • Handle: RePEc:eee:moneco:v:116:y:2020:i:c:p:166-183
    DOI: 10.1016/j.jmoneco.2019.08.008
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    Cited by:

    1. Jackson, Emerson Abraham, 2020. "Fostering Sustainable Innovation through Creative Destruction Theory," MPRA Paper 102174, University Library of Munich, Germany, revised 21 Mar 2020.
    2. Honorine Harlé & Pascal Le Masson & Benoit Weil, 2021. "A model of creative heritage for industry: designing new rules while preserving the present system of rules [Un modèle de patrimoine de création pour l'industrie: concevoir de nouvelles règles dans," Post-Print hal-03406761, HAL.

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    More about this item

    Keywords

    Economic growth; Creative destruction; Innovation; Tax policy; Inequality;
    All these keywords.

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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