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Optimal Stabilization Policy in the Presence of Learning by Doing

Author

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  • Martin, Philippe
  • Rogers, Carol Ann

Abstract

The paper analyses, along the transition path and in steady state, the optimal stabilization policy in an economy in which growth is driven by learning by doing. If future benefits of learning by doing are not fully internalized by workers the optimal fiscal policy is to tax labour during expansions so as to be able to subsidize it during recessions. The long-term impact on output and on human capital of such a policy depends critically on initial conditions: if stabilization is initiated during an expansion its effect on long-term production is positive. The long-term effect is negative when stabilization is initiated during a recession.

Suggested Citation

  • Martin, Philippe & Rogers, Carol Ann, 1995. "Optimal Stabilization Policy in the Presence of Learning by Doing," CEPR Discussion Papers 1129, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1129
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    Cited by:

    1. Zied Ftiti, 2010. "Stabilité-croissance et performance économique : quelle relation selon une revue de la littérature ?," Post-Print halshs-00537009, HAL.
    2. Alan Krause, 2008. "Optimal Nonlinear Income Taxation with Learning-by-Doing," Discussion Papers 08/08, Department of Economics, University of York.
    3. Martin, Philippe & Ann Rogers, Carol, 2000. "Long-term growth and short-term economic instability," European Economic Review, Elsevier, vol. 44(2), pages 359-381, February.
    4. Callen, Michael & Imbs, Jean & Mauro, Paolo, 2015. "Pooling risk among countries," Journal of International Economics, Elsevier, vol. 96(1), pages 88-99.
    5. Talukdar, Bidyut, 2017. "Learning-by-doing, organizational capital and optimal markup variations," The Journal of Economic Asymmetries, Elsevier, vol. 15(C), pages 39-47.
    6. Kushal Banik Chowdhury & Srikanta Kundu & Nityananda Sarkar, 2018. "Regime‐dependent effects of uncertainty on inflation and output growth: evidence from the United Kingdom and the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 65(4), pages 390-413, September.
    7. Krause, Alan, 2009. "Optimal nonlinear income taxation with learning-by-doing," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1098-1110, October.

    More about this item

    Keywords

    Cycles; Growth; Learning By Doing; Stabilization Policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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