A closed-form solution of the uzawa-lucas model of endogenous growth

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Abstract

This paper presents a closed-form solution to the Uzawa-Lucas endogenous growth model with human and physical capital. Our result also applies if an external effect in the use of human capital in goods production occurs. Using the ''guess-and-verify'' method, we determine the two value functions of the social planner in the centralized economy and of the representative agent in the decentralized case. We show that the introduction of income taxes on wages and of a subsidy on physical capital earnings helps the decentralized economy in reaching the social optimum, while keeping the policy maker's budget balanced. Finally, we derive the time-series implications of the model's solution.

Original languageEnglish
Pages (from-to)87-107
Number of pages21
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume90
Issue number1
DOIs
Publication statusPublished - 2007 Jan

Keywords

  • Closed-form solution
  • Uzawa-Lucas endogenous growth model
  • Value function

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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