Growth and Welfare Effects of Stabilizing Innovation Cycles

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5 Citations (Scopus)

Abstract

We consider a simple model of innovation where equilibrium cycles may arise and show that, whenever actual capital accumulation falls below its balanced growth path, subsidizing innovators by taxing consumers has stabilizing effects, promotes sustained growth 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 beneficial effects as it fosters output growth along the transitional adjustment path, and increases the welfare of current and future generations. (c) 2007 Elsevier Inc. All rights reserved.

Original languageEnglish
Pages (from-to)806-823
Number of pages18
JournalJournal of Macroeconomics
Volume29
Issue number4
DOIs
Publication statusPublished - Dec 2007

Keywords

  • growth
  • endogenous cycles
  • stabilization
  • innovation
  • subsidy
  • welfare
  • LONG-RUN GROWTH
  • DEVELOPMENT SUBSIDIES
  • CREATIVE DESTRUCTION
  • BUSINESS CYCLES
  • POLICY

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