Contents

Abstract 14

Keywords 14

1. Introduction 15

2. Endogenous growth: Infinite lifetimes 16

2.1. Growth and the Solow model 17

2.2. Aonesectormodelofequilibriumgrowth 19

2.3.

2.3.1. Quantitative analysis of the effects of taxes 23

2.3.2. Productive government spending 25

2.4. Innovation in the neoclassical model 27

2.4.1. Notation 28

2.4.2. Balancedgrowthpropertiesofthemodel 30

2.4.3. Adding a non-convexity 31

3. Fluctuations and growth 32

3.1. Introduction 32

3.2. Empirical evidence 32

3.3. Theoretical models 39

3.4. A simple linear endogenous growth model 39

3.4.1. CaseEAnAkmodel 43

3.4.2. Case 2: A two sector (technology) model 46

3.4.3. Case 3: Aggregate vs. sectoral shocks 47

3.5. Physical and human capital 49

3.6. The opportunity cost view 54

3.7. More on government spending, taxation, and growth 56

Handbook of Economic Growth, Volume LA. Edited by Philippe Aghion and StevenN. Durlauf

© 2005 Elsevier B.V. All rights reserved

DOI: 10.1016∕S1574-0684(05)01001-4

3.8. Quantitativeeffects

59

62

63

63

4. Concludingcomments Acknowledgements References