Optimal Stabilization Policy in the Presence of Learning by Doing

Posted: 15 Jan 2001

See all articles by Philippe Martin

Philippe Martin

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR)

Carol Ann Rogers

Georgetown University - Department of Economics

Abstract

This paper analyses the optimal stabilization policy when growth is driven by learning by doing. If benefits of learning by doing are not fully internalized, the optimal policy is to tax labor during expansions and to subsidize it during recessions. The long-term impact of this policy depends critically on initial conditions: If stabilization starts during an expansion, it has a positive effect on long-term production. When stabilization starts during a recession, its long-term effect is negative. The paper makes a methodological contribution in its analytical derivation of the optimal policy along the transition path as well as in the steady state.

Suggested Citation

Martin, Philippe and Rogers, Carol Ann, Optimal Stabilization Policy in the Presence of Learning by Doing. Journal of Public Economic Theory, Vol. 2, Issue 2, April 2000. Available at SSRN: https://ssrn.com/abstract=242191

Philippe Martin (Contact Author)

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4313 6385 (Phone)
+33 1 4313 6382 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Carol Ann Rogers

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
(202) 687-5816 (Phone)
(202) 687-6102 (Fax)

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