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Cooperative economic growth

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  • Dai, Darong
Abstract
We comparatively study optimal economic growth in a simple endogenous growth model and under two different games, i.e., dynamic sequential game and cooperative stochastic differential game, between a representative household and a typical self-interested politician. Sequential equilibrium solution is derived by applying Backward Induction Principle and corresponding optimal economic growth rate is endogenously determined. Moreover, cooperative equilibrium solution is established with group rationality, individual rationality and sub-game consistency requirements fulfilled, and it is further confirmed that the representative household will save more, and the self-interested politician will tax less, thereby leading to much faster economic growth, when compared to those of the sequential equilibrium solution.

Suggested Citation

  • Dai, Darong, 2013. "Cooperative economic growth," Economic Modelling, Elsevier, vol. 33(C), pages 407-415.
    • Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:407-415
    DOI: 10.1016/j.econmod.2013.04.011
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    More about this item

    Keywords

    Endogenous growth; Endogenous savings; Capital income tax; Sequential equilibrium; Cooperative stochastic differential game; Political economy;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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