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Optimal factor taxation in a scale free model of vertical innovation
Author(s) -
Annicchiarico Barbara,
Antonaroli Valentina,
Pelloni Alessandra
Publication year - 2022
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.13033
Subject(s) - economics , growth model , endogenous growth theory , productivity , capital (architecture) , microeconomics , scale effects , scale (ratio) , labour economics , macroeconomics , human capital , market economy , history , physics , archaeology , quantum mechanics
Abstract The objective of the paper is to study how the tax burden arising from an exogenous stream of public expenditures and transfers should be distributed between labor and capital in a scale‐less endogenous growth model, where the engine of growth are successful innovations. Our laboratory is a prototypical quality ladder model with a labor/leisure choice where research and development productivity is decreasing in the size of the economy. Our contribution is to show that even when labor supply has no effects on growth in the long run, it will still be optimal to tax capital for reasonable parametrizations of the model.