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Public Goods, Redistribution, and Growth: A Classical Model

Author

Listed:
  • Daniele Tavani

    (Department of Economics, Colorado State University (USA).)

  • Luca Zamparelli

    (Sapienza, University of Rome)

Abstract

We extend the basic Classical growth model by introducing a productive and redistributive role for the public sector in an economy populated by two classes, workers (who supply labor, consume, and do not save) and capitalists (who own capital stock, consume and save). The government levies a tax on profits in order to: (i) finance the provision of a public good that augments the production possibilities of the economy, and (ii) integrate labor incomes through a transfer to workers. Following Michl (2009), we focus on two different model ‘closures’, which deliver an endogenous and an exogenous growth rate respectively. In both cases, the analysis of taxation and government spending composition between public goods and transfers requires to specify the government’s preferences. In the endogenous growth model, the government’s choice fixes long-run growth and income distribution. In the exogenous growth model, policy decisions determine income distribution and the employment rate.

Suggested Citation

  • Daniele Tavani & Luca Zamparelli, 2014. "Public Goods, Redistribution, and Growth: A Classical Model," Working Papers 10/14, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:10/14
    as

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    References listed on IDEAS

    as
    1. Thomas Michl, 2006. "Capitalists, workers, and the burden of debt," Review of Political Economy, Taylor & Francis Journals, vol. 18(4), pages 449-467.
    2. Kocherlakota, Narayana R & Yi, Kei-Mu, 1996. "A Simple Time Series Test of Endogenous vs. Exogenous Growth Models: An Application to the United States," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 126-134, February.
    3. Turnovsky, Stephen J., 1996. "Optimal tax, debt, and expenditure policies in a growing economy," Journal of Public Economics, Elsevier, vol. 60(1), pages 21-44, April.
    4. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    5. Thomas R. Michl, 2007. "Capitalists, Workers And Social Security," Metroeconomica, Wiley Blackwell, vol. 58(2), pages 244-268, May.
    6. Pierre‐Richard Agénor & Kyriakos C. Neanidis, 2011. "The Allocation Of Public Expenditure And Economic Growth," Manchester School, University of Manchester, vol. 79(4), pages 899-931, July.
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    More about this item

    Keywords

    Classical growth; functional distribution; redistributive policy.;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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