Abstract
A theory of endogenous growth is based on an investment possibility function, relating the growth rate of output to the ratio of gross investment to output and the growth rate of employment as formulated originally by M. F. Scott. Consumers maximize an intertemporal utility function and producers maximize the value of the firm. The long-run rate of growth depends on consumer preferences, the exogenous growth of labor supply and the tax rate on output. The functional distribution of income is determined along with the investment ratio in the steady state. Labor market imperfections and real wage inertia induce transition processes, which are relevant for medium term growth.
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We are indebted to Olivier Blanchard, Casper van Ewijk, Frederick van der Ploeg, Anton van Schaik, Maurice Scott, Jacques Smulders, and two anonymous referees for their valuable comments on an earlier version. Of course, the usual disclaimer applies.
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van de Klundert, T., Meijdam, L. Endogenous growth and income distribution. Journal of Economics Zeitschrift für Nationalökonomie 58, 53–75 (1993). https://doi.org/10.1007/BF01234801
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DOI: https://doi.org/10.1007/BF01234801