Monopolistic Competition, Efficient Bargaining and Endogenous Growth

This paper sets up an endogenous growth model with monopolistic competition in the product market and efficient bargaining in the labor market, and uses it to examine the impacts of union power, monopoly power and tax policy on the long-run economic growth rate. Some main findings emerge from the analysis. First, when the capital income tax rate exceeds the labor income tax rate, a rise in union power will always increase the economic growth rate. Secondly, how monopoly power affects the economic growth rate depends on the strength of union power and the tax structure. Third, either a higher capital or a higher labor income tax rate has a detrimental effect on the balanced growth rate.