Based on individual occupational choice in a model including a production function with public investment and public health infrastructure, this paper presents an examination of how allocation of public investment and public health infrastructure affects the dynamics of income. Individuals work as skilled laborers or unskilled laborers, as in the model described by Caselli (1999), and educational costs are necessary to work as a skilled laborer. Results show that government should provide both public investment and public health infrastructure to escape from the poverty trap with low income. Moreover, based on an initial allocation between public investment and public health infrastructure, it is decided how the government should form a policy to increase income growth.
Earlier papers have examined endogenous growth models including public investment financed by an income tax. However, public capital with such financing has not been reported. Aging societies are developing rapidly in economically developed countries. Consumption taxes to finance government expenditures are attractive to alleviate intergenerational inequality. In this paper, we demonstrate that, for public investment financing, a consumption tax is better than an income tax for income growth. If a future generation’s utility is not discounted greatly in social welfare, a consumption tax is superior. A government-set income growth rate target makes income tax financing desirable by providing more social welfare.
This paper considers the relationship between economic growth and minimum wage. Minimum wage helps reduce poverty and maintain a minimum standard of living. However, it is also claimed that minimum wage has a negative effect on employment and GDP. This paper develops a simple two-period overlapping generation model with three economic policies, minimum wage, unemployment benefit, and public investment that improves labor productivity. The government imposes tax on firms to finance public capital and unemployment benefit under a balanced budget. We show that economic growth is promoted with an increase in minimum wage and the ratio of public investment to tax revenue.
Several reasons underlie the increased labour participation of older people in Japan. One reason is the subsidy for the labour supply of elderly people. This article presents an examination of how this subsidisation of the labour supply of elderly people affects the labour participation of young and elderly people and unemployment. Consequently, an aging society brought about by an increase in the survival rate and the subsidy for elderly labour raise the employment rate and labour participation rate of elderly people in a temporary equilibrium model. This result is consistent with the real world. However, considering the steady state in a closed economy under which capital accumulation is considered, the effect of this subsidy on the employment rate and labour participation of elderly people is slight because of a decrease in the wage rate. JEL: J21
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