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Fiscal Policy in a Stochastic Model of Endogenous Growth
Canton,E.J.F.
Canton,E.J.F.
Abstract
It is nowadays widely believed that public schooling may contribute favourably to long-term economic growth. The income tax rates that are needed to finance government spending typically show an erratic time pattern. Such tax randomness could increase the intensity of the business cycle. Thus, government spending on education may spur economic growth, but the other side of the coin is that this is likely to increase the intensity of cyclical fluctuations. These issues are discussed in the context of a stochastic endogenous growth model with learning-by-doing as well as schooling activity. The key results are: (i) income taxation may go hand in hand with increased economic growth under certain conditions, (ii) tax randomness is responsible for a modest fraction of cyclical variability, (iii) the inclusion of stochastic taxation brings the model closer to the U.S. business cycle experience, (iv) the employment variability puzzle can be solved by introducing stochastic discounting, (v) the latter model can successfully pass a Wald-test, (vi) the interaction between long-term economic growth and the business cycle can be positive as well as negative, and (vii) the model typically suggests that capital taxes stabilize the economy.
Description
Pagination: 45
Date
1997
Journal Title
Journal ISSN
Volume Title
Publisher
Macroeconomics
Files
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63.pdf
Adobe PDF, 812.25 KB
Research Projects
Organizational Units
Journal Issue
Keywords
Fiscal policy, economic growth, business cycles, E32 - Business Fluctuations ; Cycles, E62 - Fiscal Policy ; Modern Monetary Theory, J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity, O41 - One, Two, and Multisector Growth Models, SDG 8 - Decent Work and Economic Growth, SDG 17 - Partnerships for the Goals
Citation
Canton, E J F 1997 'Fiscal Policy in a Stochastic Model of Endogenous Growth' CentER Discussion Paper, vol. 1997-63, Macroeconomics, Tilburg.