Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/176282
Authors: 
Bishnu, Monisankar
Ghate, Chetan
Gopalakrishnan, Pawan
Year of Publication: 
2013
Series/Report no.: 
Working Paper No. 264
Abstract: 
We construct a tractable endogenous growth model with production externalities in which the public capital stock augments investment specific technological change. We characterize the first best fiscal policy and show that there exist several labor and capital tax-subsidy combinations that decentralize the planner's growth rate. The optimal factor income tax mix is therefore indeterminate which gives the planner the flexibility to choose policy rules from a large set. Our model explains why many advanced economies experiencing similar growth rates have widely varying factor income tax rates.
Subjects: 
Investment Specific Technological Change
Endogenous Growth
Factor Income Taxation
Welfare
First best fiscal policy
Indeterminacy
JEL: 
E2
E6
H2
O4
Document Type: 
Working Paper

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