On a two sector endogenous growth model with quasi geometric discounting
We study a two sector endogenous growth model with quasi geometric discounting in which human capital is the engine of growth. We show that a planning economy welfare dominates a competitive economy and time consistent government policy is welfare improving if the agents are sufficiently patient. The government policy consists of a tax on physical capital income and a subsidy on human capital accumulation. Our results differ from those of existing one sector models with quasi geometric discounting in which a competitive economy always outperforms a planning economy and the government's time consistent tax policies reduce equilibrium welfare.