We extend the class of quality-ladder growth models (Grossman-Helpman (1991), Segerstrom (1998) and others), to encompass an economy with asymmetric fundamentals. In contrast to the standard framework, in our model industries may differ in terms of their innovative potential (quality jumps and arrival rates) and consumers' preferences. This extension allows us to bring industrial policy back into the realm of the growth policy debate. We first show that it is always possible to raise the long-run growth rate and the social welfare of the economy through a costless tax/subsidy scheme reallocating resources towards the relatively more promising industries. We then prove that, in certain economies, even a mere profit taxation policy increases economic growth and social welfare above the laissez-faire.

The Importance of Industrial Policy in Quality-Ladder Growth Models / Giordani, Paolo; Zamparelli, Luca. - In: THE B.E. JOURNAL OF MACROECONOMICS. - ISSN 1935-1690. - 8:1(2008), pp. 1-30.

The Importance of Industrial Policy in Quality-Ladder Growth Models

GIORDANI, PAOLO;ZAMPARELLI, LUCA
2008

Abstract

We extend the class of quality-ladder growth models (Grossman-Helpman (1991), Segerstrom (1998) and others), to encompass an economy with asymmetric fundamentals. In contrast to the standard framework, in our model industries may differ in terms of their innovative potential (quality jumps and arrival rates) and consumers' preferences. This extension allows us to bring industrial policy back into the realm of the growth policy debate. We first show that it is always possible to raise the long-run growth rate and the social welfare of the economy through a costless tax/subsidy scheme reallocating resources towards the relatively more promising industries. We then prove that, in certain economies, even a mere profit taxation policy increases economic growth and social welfare above the laissez-faire.
Innovation-driven growth; asymmetric fundamentals; industrial policy
The Importance of Industrial Policy in Quality-Ladder Growth Models / Giordani, Paolo; Zamparelli, Luca. - In: THE B.E. JOURNAL OF MACROECONOMICS. - ISSN 1935-1690. - 8:1(2008), pp. 1-30.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/7142
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