14 Pages Posted: 20 Nov 2010
Date Written: November 20, 2010
This paper sets up an endogenous growth model in which public capital is a productive input and where the intermediate goods sector is characterized by monopolistic competition. The model is used to examine the effects of monopoly power, and the taxation policy on the economic growth rate. Three major findings emerge from our analysis. First, an increase in monopoly power may enhance economic growth. Second, the capital income tax policy has an ambiguous effect on the economic growth rate. Third, a higher labor income tax rate will always increase the economic growth rate.
Keywords: Endogenous Growth, Imperfect Competition, Public Capital
JEL Classification: D43, O41
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