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Financial deepening in a two-sector endogenous growth model with productivity heterogeneity

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  • Nguyen Quoc Hung

    (School of Economics and Management, University of Hyogo, 8-2-1 Gakuen-Nshimachi, Nishi-ku, Kobe, Hyogo 651-2197, Japan, Phone: +81-78-794-5442, Fax: +81-78-794-6166)

Abstract

This paper studies the effects of financial deepening and fiscal policy on human capital formation, working hours and growth in a model with financial frictions and productivity heterogeneity. The paper first shows that in the range of capital tax rates that attains a balanced growth path, taxation exerts inverted U-shaped effects on growth. The paper then analytically derives and shows that the growth maximizing tax rate and the corresponding growth are increasing concave functions of the financial deepening level. Finally, it is shown that theoretical predictions of the model are in line with data from OECD countries.

Suggested Citation

  • Nguyen Quoc Hung, 2020. "Financial deepening in a two-sector endogenous growth model with productivity heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-19, January.
    • Handle: RePEc:bpj:bejmac:v:20:y:2020:i:1:p:19:n:23
    DOI: 10.1515/bejm-2019-0039
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    Cited by:

    1. Sergio Salas & Kathleen Odell, 2020. "Financial Deepening, Credit Crises, Human Capital and Growth," Working Papers 2020-01, Escuela de Negocios y Economía, Pontificia Universidad Católica de Valparaíso.

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    More about this item

    Keywords

    financial deepening; heterogeneity; taxation;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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