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Taxation in the Two-Sector Neoclassical Growth Model with Sector-Specific Externalities and Endogenous Labor Supply

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  • Amano, Daisuke
  • Itaya, Jun-ichi

Abstract

This paper examines the long-run impacts of selective (sector-specific) commodity, payroll and profit taxes in a two-sector endogenous growth model with sector-specific production externalities, in which one sector produces consumption goods and the other produces investment goods. The novelty of the model is that it allows not only for endogenous labor supply (which may lead to indeterminacy) but also for the intersectional allocation of labor. We analytically show that the long-run effects of these selective taxes are closely related to the possible emergence of the indeterminacy of equilibria, which may reverse the standard results of the growth effects of distortionary taxes.

Suggested Citation

  • Amano, Daisuke & Itaya, Jun-ichi, 2010. "Taxation in the Two-Sector Neoclassical Growth Model with Sector-Specific Externalities and Endogenous Labor Supply," Discussion paper series. A 225, Graduate School of Economics and Business Administration, Hokkaido University.
    • Handle: RePEc:hok:dpaper:225
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    File URL: http://hdl.handle.net/2115/43304
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    References listed on IDEAS

    as
    1. Milesi-Ferretti, Gian Maria & Roubini, Nouriel, 1998. "On the taxation of human and physical capital in models of endogenous growth," Journal of Public Economics, Elsevier, vol. 70(2), pages 237-254, November.
    2. de Hek, Paul A., 2006. "On taxation in a two-sector endogenous growth model with endogenous labor supply," Journal of Economic Dynamics and Control, Elsevier, vol. 30(4), pages 655-685, April.
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    Cited by:

    1. Kazuo Mino, 2016. "Fiscal Policy in a Growing Economy with Financial Frictions and Firm Heterogeneity," The Japanese Economic Review, Springer, vol. 67(1), pages 3-30, March.

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    More about this item

    Keywords

    Selective tax; Two-sector model; Endogenous growth; Production externalities; Indeterminacy; Endogenous labor supply; H22; J22; O41;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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