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Distributive Conflict, Growth, and the ‘Entrepreneurial State’

Author

Listed:
  • Daniele Tavani

    (Department of Economics, Colorado State University.)

  • Luca Zamparelli

    (Department of Social Sciences and Economics, Sapienza University of Rome)

Abstract
In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) growth cycle model. The government collects income taxes in order to: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly funded research, which augments the growth rate of labor productivity. We first focus on a special case in which labor productivity growth depends entirely on public research, and show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticity of labor productivity growth to public R&D, there exists a tax rate tau* that maximizes the long-run labor share, but not a growth-maximizing tax rate; (ii) the long-run labor share is always increasing in the share of public spending in infrastructure, and (iii) the presence of public R&D is not enough to stabilize the distributive conflict. We then study a more general model with induced technical change where, as is well known in the literature, the distributive conflict is resolved in the long run. With induced technical change: (iv) the labor share-maximizing tax rate is the same as in the special case; (v) the long-run share of labor is always increasing in the share of public spending in infrastructure, and (vi) maximizing growth requires to levy a tax rate in excess of tau*.

Suggested Citation

  • Daniele Tavani & Luca Zamparelli, 2016. "Distributive Conflict, Growth, and the ‘Entrepreneurial State’," Working Papers 6/16, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:6/16
    as

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    File URL: http://www.diss.uniroma1.it/sites/default/files/allegati/DiSSE_Tavani_Zamparelli_wp6_2016.pdf
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    References listed on IDEAS

    as
    1. van der Ploeg, F., 1987. "Growth cycles, induced technical change, and perpetual conflict over the distribution of income," Journal of Macroeconomics, Elsevier, vol. 9(1), pages 1-12.
    2. Daniele Tavani, 2013. "Bargaining over productivity and wages when technical change is induced: implications for growth, distribution, and employment," Journal of Economics, Springer, vol. 109(3), pages 207-244, July.
    3. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    4. Luca Spinesi, 2013. "Academic and industrial R&D: are they always complementary? A theoretical approach," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 147-172, January.
    5. Daniele Tavani & Luca Zamparelli, 2013. "Endogenous Technical Change, Employment and Distribution in the Goodwin Model," IMK Working Paper 127-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    6. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Public R&D; Goodwin growth cycle; optimal fiscal policy.;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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