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on Economic Growth |
| By: | Miyake, Yusuke |
| Abstract: | This study investigates how Artificial Intelligence (AI) affects fertility decisions, economic growth, and overall social welfare. Despite substantial technological progress and increases in economic output (GDP), advanced economies, notably Japan, face severe demographic challenges due to dramatically declining fertility rates. This phenomenon raises important questions regarding the traditional measures of economic prosperity, prompting a re-evaluation of GDP as a reliable indicator of social welfare. To address these issues, this article develops a dynamic economic growth model incorporating heterogeneous human capital (skilled and unskilled labor) and introduces AI as a new, distinct form of capital investment. Unlike traditional physical capital, AI capital features negligible depreciation rates, significantly altering investment decisions, and long-term growth dynamics. On the demand side, households optimize their utility by allocating their limited time between labor supply, leisure, and child-rearing activities, directly influencing fertility rates and human capital accumulation. This paper argues that AI-driven algorithms fundamentally improve market efficiency by precisely matching heterogeneous consumer preferences and supplier characteristics, leading to optimal resource allocation. Unlike the traditional ”law of one price, ” algorithm-driven markets generate multiple equilibrium prices, varying according to individual preferences and attributes, characterized herein as a shift toward a ”law of multiple prices.” The analysis suggests critical policy implications, emphasizing the need for refined economic and educational policies that address the implications of AI-driven market dynamics on fertility choices and income distribution. In particular, policy interventions must strategically promote educational reforms that diversify and enrich human capital, aligning it more closely with the demands of AI-intensive industries. This model provides a theoretical framework for understanding the intricate interplay between AI, demographic shifts, economic inequality, and long-term growth trajectories. |
| Keywords: | Artificial Intelligence, Fertility Decline, Endogenous Growth, Algorithmic Economics, Human Capital, Social Welfare |
| JEL: | J13 J24 O33 O4 O41 |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124245 |
| By: | Mr. Serhan Cevik |
| Abstract: | The total fertility rate—the average number of births per woman—in Europe is already at 1.46, which is significantly below the replacement rate of 2.1, where fertility compensates for mortality and thereby the population replaces itself from one generation to the next. Falling fertility rates will have far-reaching social and economic consequences, and therefore it is a critical empirical exercise to estimate the impact of below-replacement fertility on income growth and test quantitatively for the existence of mitigating factors that could inform appropriate policy responses. In this paper, I address the endogeneity bias caused by reverse causality by implementing an instrumental variable approach and use exogenous variation in the comparative abortion index as an instrument for the total fertility rate. These results show that fertility has a significant positive effect on real GDP per capita growth in a sample of 42 European countries over the period 1960–2022. This means that the downward fertility transition across Europe, accompanied by fast-aging population, is a significant drag on income per capita growth. |
| Keywords: | Fertility; demographic trends; economic growth; Europe |
| Date: | 2025–03–21 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/055 |
| By: | Hu, Sijie |
| Abstract: | In unified growth models, the evolving nexus between population dynamics and technological change is key to achieving sustained economic growth. This paper uses genealogical records of 23, 449 males and their spouses to investigate this interplay-the intergenerational transmission of reproduction and human capital-within six Chinese lineages from 1300 to 1920. Examining the relationship between reproduction and long-run reproductive success, the empirical results reveal an optimal level of reproduction, demonstrating a strong Darwinian trade-off: high reproduction in each generation did not consistently lead to long-term reproductive success. Further analysis of the mechanisms is consistent with a Beckerian trade-off, highlighting the potential costs of excessive reproduction through contrasting outcomes in sons' quality: having more brothers exhibited little apparent impact on marriageability but may have been associated with lower human capital. Together, these findings contribute to a deeper understanding of micro-demographic dynamics in pre-modern China and the persistence of Malthusian constraints. |
| Keywords: | Reproduction, Long-run reproductive success, Child quantity-quality trade-off, Ming-Qing China |
| JEL: | I25 J13 N35 O15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1572 |
| By: | Sasaki, Hiroaki; Sonoda, Ryunosuke |
| Abstract: | This study investigates how the income redistribution policy affects economic growth, employment, income distribution, income inequality, and asset inequality in the context of "secular stagnation." The income redistribution policy is defined as one that imposes capital taxation on capitalists and redistributes it to workers. For this purpose, we construct a Kaleckian model in which, in addition to capitalists, workers own capital stock through savings. Depending on the relative size of workers' and capitalists' saving rates, we obtain the Pasinetti equilibrium, in which both classes coexist, and the dual equilibrium, in which only workers own capital stock, whereas capitalists do not. In the Pasinetti equilibrium, raising the tax rate for capitalists drives an increase in workers' assets and income shares. Simultaneously, economic growth and employment rates increase when the short-run equilibrium is wage-led growth whereas they decrease when the short-run equilibrium is profit-led growth. Hence, the income redistribution policy is effective in reducing inequality and promoting economic growth and employment when the short-run equilibrium is wage-led. |
| Keywords: | workers' saving, income equality, income redistribution policy, growth, employment |
| JEL: | E11 E12 E64 J53 |
| Date: | 2025–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124081 |
| By: | Kheng, Veasna; Pan, Lei; Fan, Xiaodong |
| Abstract: | This paper adopts an economic framework to examine the impact of interna- tional travel on human capital development. Using a fixed-effects instrumental variable estimator as the primary analytical approach, the study investigates a panel dataset covering 64 countries from 1995 to 2019. The findings reveal that international travel, measured through tourism openness, has a significant positive effect on human capital. These results underscore the importance of global human mobility—encompassing migration, international educational exchange, and tourism—in fostering the development and dissemination of knowledge, culture, and technology. |
| Keywords: | travel; human capital development; economic growth and development |
| JEL: | C23 J24 O40 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124156 |
| By: | Pedro Lima (University of Coimbra, CeBER and Faculty of Economics); Tiago Neves Sequeira (University of Coimbra, CeBER and Faculty of Economics); Óscar Afonso (CEF-UP, CEFAGE-UBI and Faculty of Economics of University of Porto) |
| Abstract: | We analyze the effects of lobbying on growth and inequality in a novel directed technical change model, where firms producing different technologies can engage in either demand-seeking lobbying-aimed at increasing demand or rent-seeking lobbying-focused on extracting economic rents. Demand-seeking lobbying promotes economic growth and, when goods are gross substitutes, also increases inequality. In contrast, rent-seeking lobbying has the opposite effects. We also develop a microfounded theoretical game that models generalized lobbying decisions. In this framework, firms from different sectors can either compete or collaborate in their lobbying efforts. The model reveals that lobbying incentives are stronger when fixed costs are low and when shared sources of lobbying efficiency outweigh sector-specific ones. Given our results, it is essential for policy to distinguish between rent-seeking and demand-seeking lobbying practices, and to design targeted incentives for each in order to effectively influence growth and inequality. |
| Keywords: | Lobbying; economic growth; wage inequality |
| JEL: | J31 P16 O30 O41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:gmf:papers:2025-01 |
| By: | Timothy A. Kohler; Adam Green; Scott G. Ortman |
| Abstract: | We use archaeological data on house sizes to generate estimates for economic inequality and economic growth from near the beginning of the Holocene to about the first millennium AD. At worldwide scales these variables are positively related, but patterns are more divergent at regional levels. Cross-sectional regression shows that the formation of central-place hierarchies and development of landesque capital are important in generating both wealth and wealth inequality; development of farming is also important to the generation of wealth. |
| Keywords: | Economic inequality, Economic growth |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2025-16 |
| By: | Snigdha Kalra (Indira Gandhi Institute of Development Research); Sargam Gupta (Indira Gandhi Institute of Development Research) |
| Abstract: | This paper explores the possible ways in which the emerging market and developing economies (EMDEs) can improve their tax-to-GDP ratio using a theoretical framework. We do this using a Laffer curve analysis at the balanced growth path. We develop a closed-economy discrete-time neoclassical growth model with heterogeneous agents, and three sectors: households, firms, and the government. This model is calibrated for a typical EMDE and it incorporates two well-documented features that limit their tax capacity. The first feature we model is the presence of a large proportion of the economy that neither pays nor files taxes. To address this, our model includes heterogeneous agents, represented by Ricardian and non-Ricardian households. Non-Ricardian households belong to the informal sector and are entirely exempt from taxes, while Ricardian households may choose to comply with tax obligations, creating a partially endogenous framework for tax evasion. The second critical feature is the relative weakness of institutions in the EMDEs as compared to the advanced economies (AEs). We incorporate aspects such as the probability of audits, penalties for evasion, and the culture of corruption in a minimalist way to capture the essence of the realities of weak institutions. We derive the expression for the Laffer curve for three types of taxes: the labour income tax, the capital income tax, and the consumption tax. We find that the fiscal policies attuned towards bringing a higher percentage of agents under the ambit of tax collection - despite households evading taxes - significantly boost the tax revenues. The model clearly shows that countries with weaker institutions will have a lower tax capacity, as any increase in the tax rates reduces tax compliance and increases tax evasion. Finally, reducing the income tax exemptions, decreasing the share of informal sector firms and employees, and strengthening the institutional quality are essential for improving the fiscal space in the EMDEs. To our knowledge, no coherent neoclassical growth model exists in the literature that effectively captures these features within EMDEs. |
| Keywords: | Laffer curve, Optimal taxes, Growth models, Heterogeneous Agents, Institutions, Tax Evasion |
| JEL: | E02 E13 E62 H21 H26 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2025-007 |
| By: | Philippe Aghion; Timo Boppart; Michael Peters; Matthew Schwartzman; Fabrizio Zilibotti |
| Abstract: | We develop and quantify a growth theory where consumers' preferences are defined over products with varying environmental impacts. Preferences are non-homothetic: Necessities are intensive in material inputs whose production leads to high emissions, while luxury goods, being more reliant on services, exhibit a comparatively lower environmental footprint. Directed innovation is the focal point of the study: it can be aimed at either enhancing the productivity of material production or refining the quality of luxury goods. Over time, innovation increasingly prioritizes quality improvement, consequently reducing the environmental impact of economic growth. The pace of structural transformation and the composition of GDP are both endogenous and susceptible to policy interventions. The shift towards quality-oriented growth may result in a decline in (mis)measured GDP growth without a decrease in welfare. Extending the model to a two-country trade scenario reveals that trade barriers could have a detrimental effect on environmental sustainability. |
| Keywords: | environmental impact, sustainability, degrowth |
| Date: | 2025–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2086 |