Departmental Bulletin Paper Exchange rate and tax policies in an economic development model with public capital

村上 弘毅  ,  SASAKI  Hiroaki

 The purpose of this study is to examine the effects of exchange rate and tax policies on economic growth in a model of economic growth with public infrastructures. Public infrastructure, such as roads, airports, bridges, ports and electricity, gas and water services, is, in general, considered to have a positive influence on economic activities and there have been several empirical studies to evaluate this positive impact. On the basis of these preceding works, our present study provides a model of economic development in which public infrastructure enhances productivity. Our analysis shows that wage flexibility affects economic stability. Specifically, we find that there exists a threshold value in the degree of wage flexibility; that the stationary point is unstable or stable, respectively, when the degree is less than or more than the threshold value; that cyclical fluctuations arise when the degree is suficiently close to the threshold value.

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