Variety Of Intermediate Goods Research Articles

Factor income taxation in a horizontal innovation model

We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. In the model there are externalities both to working and to saving, due to market power by firms, incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures. Redistributing the tax burden from labor to capital will increase employment but, in most cases, reduce the rate of growth, with conflicting effects on the deadweight loss from the externalities. Under plausible calibrations of the model, the optimal tax rate on capital will be sizable.

Dynamic Scoring in a Romer-Style Economy

This paper explores the dynamic behavior of a Romer-style endogenous growth model, analyzing how changes in tax rates affect government revenue in the short run and the long run. I show that in this environment lowering taxes on financial income is unlikely to stimulate tax revenue in the long run and has modest effects on the tax base, contrary to some other studies of the dynamic response of revenue to tax rates. Calibrations of the model that suggest Laffer curve effects can be substantial require implausibly low values for the elasticity of substitution between varieties of intermediate goods. For more plausible parameter values, I find that around 20% of a tax cut would be self-financing due to an expansion in the tax base.

Factor Income Taxation in a Horizontal Innovation Model

We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. Redistributing the tax burden from labor to capital will in most cases increase the employment rate in equilibrium. This has opposite effects on two distortions in the model, one due to monopoly power, the second to the incomplete appropriability of the benefi ts of inventions. Their relative momentum determines the sign of the welfare effect of the redistribution. We show that, for parameter values consistent with available estimates, the optimal tax rate on capital will be sizable.

Skilled–unskilled wage inequality, product variety and unemployment: A static general equilibrium analysis

The paper develops a three-sector small open economy model with two traded final good sectors and a nontraded good sector producing varieties of intermediate goods. There are three primary factors: capital, skilled labour and unskilled labour. Industrial sector producing a tradedgood uses capital, intermediate goods and skilled labour as inputs. Intermediate goods producing sector also uses capital and skilled labour. The efficiency wage hypothesis is introduced to explain unemployment in each of these two labour markets. It is shown that an increase in either type of labour endowment (capital endowment) raises (lowers) the unemployment rate of either type of labour if the scale elasticity of output is very low. On the other hand, if the industrial sector is more capital intensive than the agricultural sector and if efficiency functions of both types of labour are identical, then an increase in either type of labour endowment (capital endowment) lowers(raises) the skilled–unskilled wage ratio. However, the effect of a change in capital endowment on the Gini Coefficient of wage income distribution is ambiguous in sign.

Welfare Improving Taxation on Savings in a Growth Model

We consider the optimal factor income taxation in a standard R&D model with technical change represented by an increase in the variety of intermediate goods. Redistributing the tax burden from labor to capital will increase the employment rate in equilibrium. This has opposite effects on two distortions in the model, one due to monopoly power, the second to the incomplete appropriability of the benefits of inventions. Their relative momentum determines the sign of the welfare effect. We show that, for parameter values consistent with available estimates, the optimal tax rate on capital will be sizable.

Vertical allocation of the production between identical countries: intra-industry trade in both a final good and the connected intermediate good

This article analyses the economic advantages of intra-industry trade in both a final good and the connected intermediate good. In comparison with a situation of autarky, this type of trade brings about an increase in the total number of intermediate good varieties and thereby a reduction in the number of adaptations of intermediate goods to the production process. In this way, the producers of final goods will benefit from varieties of intermediate goods that are closer to the ideal for a specific production process. This determines an increase in the final good productivity and thereby a decrease in the final good price. Thereby both national and global welfare will increase.

Dynamic Scoring in a Romer-Style Economy

This paper explores the dynamic behavior of a Romer-style endogenous growth model, analyzing how changes in tax rates affect government revenue in the short run and the long run. I show that in this environment lowering taxes on financial income is unlikely to stimulate tax revenue in the long run and has modest effects on the tax base, contrary to some other studies of the dynamic response of revenue to tax rates. Calibrations of the model that suggest Laffer curve effects can be substantial require implausibly low values for the elasticity of substitution between varieties of intermediate goods. For more plausible parameter values, I find that around 20% of a tax cut would be self-financing due to an expansion in the tax base.

Lump-Sum Taxes in a R&D Model

Is it possible to increase growth and welfare by raising taxes and disposing of the tax revenues? We show this may indeed be the case in a simple model with endogenous technical change, represented by an increase in the variety of intermediate goods.

Optimal Fiscal Policies, Congestion and Over‐entry*

AbstractBy shedding light on market imperfections and the congestion of public goods, we show that free entry in a market equilibrium will lead to excessive entry relative to the social optimum. Moreover, by specifying a generalized congestion function, it is also shown that different fiscal policies, including labor income tax, capital income tax and government expenditure, play a distinct role in terms of remedying market distortions. Specifically, optimal income taxes decrease with the degree of market imperfections in order to remove the monopoly inefficiency, while they increase with the degree of congestion in order to remedy the adverse externality caused by congestion distortion. Since a higher degree of increasing returns to an expansion in the variety of intermediate goods is found to intensify the congestion effect of government infrastructure expenditure, the optimal rule of government expenditure proposed by Barro (1990) should be modified.

Homogeneity masquerading as variety: the case of horizontal innovation models

The literature on ‘horizontal innovation’ claims to analyse cases where unbounded endogenous growth comes from an increasing variety of intermediate goods. The present paper contends that a good sample of representative models in this literature share two essential assumptions regarding production technology, and that these assumptions together amount to assuming the homogeneity of various intermediate goods. In these models, there is no variety of intermediate goods to increase owing to RD what increases is a mass of a single homogeneous intermediate good.

Endogenous growth in a North – South framework with human capital accumulation and technology transfer

The purpose of this paper is to study the long run evolution of a world economy (divided into a North and a South) and to re-evaluate some conventional ideas regarding the inter-relation between the two economies. Here, a technologically backward South adopts the Northern technology by importing R&D-intensive intermediate inputs from the North. However the capability of its technology adoption (shown by the number of varieties of intermediate goods it uses) is constrained by its level of human capital. The results of the model suggest that (i) at the steady state, the two countries need not grow at the same rate and that the South can manipulates its own growth rate, (ii) the terms of trade (TOT) may rise, fall or remain static at the long run steady state depending on the growth rates of the two regions. A decline in the TOT of the South is associated with a higher growth rate and higher welfare (under certain conditions). This conclusion follows as a result of the incorporation of endogenous growth theory that generates increasing returns to scale through the use of different varieties of intermediate goods.