A Convex Model of Equilibrium Growth: Theory and Policy Implications

TLDR

The paper presents a convex model of equilibrium growth. The model is convex in technology, includes fixed factors, and the authors provide existence, characterization results, and preliminary analyses of taxation and trade policies. The long‑run per‑capita consumption growth rate depends on tastes, technology, and policy parameters, and under free trade with taxation national consumption and output growth rates need not converge.

Abstract

Our aim in this paper is to exposit a convex model of equilibrium growth. The model has two features that distinguish it from most other work on the subject: first, that the model is convex on the technological side, and second, that fixed factors are explicitly included. Existence and characterization results are provided along with some preliminary analyses of taxation and international trade policies. It is shown that the long-run growth rate in per capita consumption depends, in the natural way, on the parameters describing tastes, technology, and policies. It is demonstrated that in a free-trade equilibrium with taxation, national growth rates of consumption and output need not converge.