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AbstractWe consider an Ak model in which instantaneous utility of the representative agent depends not only on current consumption, but also on a forward-looking external reference level which is specified as an exponentially declining average of future economy-wide average consumption. We show that the decentralized equilibrium is never efficient irrespective of the specification of the utility function. This result differs significantly from the implications of alternative specifications of the external reference level: In case that the latter is given by contemporaneous average consumption, the decentralized equilibrium is always efficient. However, if it is backward-looking, then efficiency obtains only if the arguments of the utility function are perfectly substitutable.

Abstract
This note analyzes the effect that the specification of technology has on the long-run growth rate and the asymptotic speed of convergence in the one-sector endogenous-growth model. We compare three otherwise identical economies – with the same baseline and parameter values – but with different production technologies: CES, VES or Sobelow, respectively. The long-run growth rate and the asymptotic convergence speed under CES production are lower than the corresponding ones under Sobelow production which, in turn, are lower than those under VES production. This is because a higher elasticity of substitution entails a higher easiness to substitute capital for labor which, in the end, results in a higher long-run growth rate.

This paper devises an endogenous growth model with physical capital accumulation, knowledge formation and R&D, in which technological progress has an erosion effect in human capital, and innovation is subject to externalities associated to the duplication of research effort. We provide conditions for the existence of a unique feasible steady‐state equilibrium with positive long‐run growth. For appropriate parameter values, the transitional dynamics of the model is represented by a two‐dimensional stable manifold. Numerical simulations show that the incorporation of an erosion effect, as well as duplication externalities, significantly increases the ability of the model to fit the observed data.

[Abstract]: This paper introduces habit-forming preferences in a Barro-type endogenous growth model with productive public services. Government expenditure, which may be subject to congestion, is financed by distortionary income taxation. Different from the standard time-separable model, the presence of habits makes the economy feature transitional dynamics, which are solved in closed form. Setting the income tax so as to equate the elasticity of public services in production is shown to maximize both long-run growth and welfare as in the standard model. This second-best solution coincides with the first-best outcome only in the presence of proportional congestion. ; Financial support from the Spanish Ministry of Science and Innovation through Grant ECO2008-04180

PurposeThe purpose of this paper is to analyze the effect of utility and production externalities on the equilibrium efficiency, and to devise tax policies capable of correcting the distortions caused by the external effects.Design/methodology/approachThe paper analyzes a Ramsey‐type model with utility and production externalities. It compares the decentralized equilibrium in the market economy with the optimal growth path attainable by a central planner.FindingsThe paper shows the effects of utility and production externalities on competitive long‐run equilibrium values. It devises optimal tax policies capable of decentralizing the optimal growth path, and shows how the leisure specification affects the optimal tax policy.Practical implicationsThe paper adds to the literature on optimal taxation, and provides theoretical results that may help policy makers to set the tax policy.Originality/valueThe paper analyzes the equilibrium efficiency in a rather general model with utility externalities, associated with both consumption and leisure, and production externalities. Equilibrium efficiency is studied under the two typical leisure specifications proposed in the literature: home production and raw time. This allows one to analyze the effect that the leisure specification has on the optimal tax policy.

ABSTRACTThis paper analyzes the effects of consumption and leisure externalities on growth and welfare in a two‐sector endogenous growth model with human capital accumulation. Both types of externalities are shown to affect the long‐run equilibrium and optimal growth rates in a rather different way. The relationship between the steady state of the market and the centrally planned economy is also analyzed. The optimal growth path can be decentralized by resorting to consumption or labor income taxation, whereas capital income should be untaxed. Numerical simulations suggest that growth and welfare effects of mild consumption and leisure externalities may be quantitatively important.

[Abstract]: The government temporal horizon is shown to be a key determinant of the optimal tax structure in an endogenous growth model of the US economy. As the temporal horizon lengthens, wage taxation is gradually substituted by consumption taxation. The optimal tax mix depends notably on the leisure specification. ; Ministerio de Ciencia y Tecnología. Fondo Europeo de Desarrollo Regional FEDER; SE2002-03663