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Title: Growing through subsidies
Authors: Aloi, Marta
Lasselle, Laurence
Editors: University of St Andrews. School of Economics and Finance
Keywords: Growth
Endogenous Cycles
Issue Date: 2001
Citation: School of Economics and Finance discussion paper series ; 0109
Abstract: We consider an overlapping generation model based on Matsuyama (1999) and show that, whenever actual capital accumulation falls below its balanced growth path, subsidising innovators by taxing consumers has stabilising effects and increases welfare. Further, if the steady state is unstable under laissez faire, the introduction of the subsidy can make the steady state stable. Such a policy has positive welfare effects as it fosters output growth along the transitional adjustment path. Therefore, fast growing economies, in which high factor accumulation plays a crucial role alongside innovative sectors that enjoy temporary monopoly rents, should follow an unorthodox approach to stabilisation. Namely, taxing the consumers and reallocate resources to the innovative sectors.
Version: Postprint
Description: Previously in the University eprints HAIRST pilot service at
Type: Working or discussion paper
Publication Status: Not published
Status: Non peer reviewed
Publisher: School of Economics and Finance, University of St Andrews.
Appears in Collections:Economics & Finance Research

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