Economic Growth and Welfare in a Simple Neoclassical OLG Model with Minimum Wage and Consumption Taxes support

In this paper we show that the neoclassical standard OLG growth model, under low substitution in preferences and technology, may generate three stable steady states. In particular we show the richness of the dynamical roles played by the intertemporal substitution parameter. The novelty of our work is that a three stable equilibria world may exist, which allows to reinterpret in a new light the evidence of three groups of countries: underdeveloped, developing and developed. Our theoretical results may have far-reaching implications on the debate on convergence, on the corresponding growth empirics and on the policies for escaping from poverty traps.