Stability, global dynamics and Markov equilibrium in models of economic growth

Abstract

This paper studies the local and a global dynamics of two-sector models of endogenous growth with economy-wide external effects and taxes on capital and labor. The local analysis classifies the parameter space depending on the number of stationary solutions and local stability of equilibria. Taxes on labor and subsidies to education may determine the existence of poverty traps and indeterminacy. The global analysis shows that if externalities and taxes are not too big then the equilibrium path is monotone and therefore a continuous Markov equilibrium can be defined