ANALYSIS OF A 2-SECTOR MODEL OF ENDOGENOUS GROWTH WITH CAPITAL INCOMETAXATION

This paper addresses a two-sector model of endogenous growth in which one sector produces final goods and the other produces new human capit al. Both sectors employ human as well as physical capital under consta nt returns to scale technologies. Unlike existing studies of this type of model that have mostly concentrated on steady-state analysis or on numerical simulations of calibrated models, this paper presents an an alytical argument concerning the dynamic behavior of the growth path a nd the effects of capital income taxation in and out of the steady-gro wth equilibrium. It is demonstrated that the dynamic behavior of the e conomy and some policy effects depend heavily upon the magnitude of fa ctor intensity used in each production sector.