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An Analysis of the Importance of Both Destruction and Creation to Economic Growth (Updated)

Author

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  • Gregory Huffman

    (Vanderbilt University)

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

  • Gregory Huffman, 2019. "An Analysis of the Importance of Both Destruction and Creation to Economic Growth (Updated)," Vanderbilt University Department of Economics Working Papers 19-00006, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:vuecon-sub-19-00006
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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.

    More about this item

    Keywords

    Economic Growth; Creative Destruction; Innovation; Firm Exit; 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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