Is it possible to increase growth and welfare by raising taxes and disposing of the tax revenues? We show this may indeed be the case in a simple model with endogenous technical change, represented by an increase in the variety of intermediate goods.

This paper shows that the under-investment in firm financed training caused by hold up can justify the introduction of firing taxes in a laissez-faire economy with search frictions and risk neutral agents. More precisely we highlight two results. First, the introduction of a firing tax for newly...