David R.F. Love

The Effects of Factor Taxation in a Two-Sector Model of Endogenous Growth

This paper examines the effects of taxation in a two-sector model of endogenous growth, based on the joint accumulation of physical and human capital. Both transitional dynamics and balanced growth paths are computed, and the response to wage taxes, capital taxes, and consumption taxes is explored. Welfare costs of alternative tax regimes are computed. The capital tax is by far the least efficient method of generating revenue. The differences between taxes with respect to their effects on long-run growth rates are relatively unimportant. The key difference between the capital tax and wage or consumption taxes lies in their different level effects on the permanent paths of output, consumption, and labour supply.

The Dynamic Effects of Government Spending Policies in a Two-Sector Endogenous Growth Model

This paper investigates the impact of government spending policies in a two sector model of endogenous growth. Endogenous growth arises because all factors of production - physical and human capital, are reproducible. Both temporary and permanent government spending shocks are examined. The model implies that a permanent, lump-sum financed, increase in government spending raises the long-run growth rate. This occurs because the negative wealth effects of a spending increase will increase labor supply. On the other hand, an income-tax (or wage-tax) financed rise in government spending reduces the growth rate. The output effects of a temporary increase in government spending may be greater or less than a permanent increase in spending. Copyright 1995 by Ohio State University Press.

Inflation Welfare, and the Time-Costs of Transacting

The costs of inflation are assessed using an endogenous growth macroeconomic model in which money reduces the time-costs of transacting. Inflation reduces growth in the model, which supports recent empirical evidence. Although simulations show time-costs to be small, inflation raises these costs and affects consumption, employment, and growth margins, implying greater welfare losses than generally found in the literature. The authors estimate welfare gains of 2 percent of GNP for reductions in inflation rates from 5 percent to zero when seignorage revenues are replaced with distortional taxes. Optimal inflation rates are negative.

A dynamic general equilibrium model of industrialization when manufactures are unnecessary

Abstract A dynamic general equilibrium model of industrialization is presented that conforms with some of the stylized facts regarding the development process, without appeal to non-convexities. Rather, we explicitly distinguish between sectoral outputs on the basis of necessity. Primary sector outputs are essential for survival whereas manufactures are not. The model supports both the ‘push’ and ‘pull’ hypotheses of the origins of industrialization. Exact numerical analyses of transition paths for both of these industrialization scenarios are presented.

Revisiting deterministic extended-path: a simple and accurate solution method for macroeconomic models

The deterministic extended-path (EP) method for solving dynamic stochastic optimisation problems approximates conditional expectations instead of approximating a models complex non-linear dynamics. For a benchmark real business cycle model we show that this straightforward approach provides excellent accuracy and uniform performance across the entire state space. Our implementation requires roughly four-fold more computer time than Galerkin projection, but the method has offsetting simplicity and generality.