...We rely on Matsuyama (1996, 1999) to study the effects on growth and welfareof non distortive tax/subsidy policies. In particular, we are interested ininvestigating the stabilising/destabilising effects of policies aimed at eliminatingeconomic fluctuations. The focus on stabilisation...

We consider a simple model of innovation where equilibrium cycles may arise and show that, whenever actual capital accumulation falls below its balanced growth path, subsidizing innovators by taxing consumers has stabilizing effects, promotes sustained growth and increases welfare. Further, if...