Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Abstract: We develop a model of endogenous growth based on the division of labour in order to discuss policy issues. The engine of growth is the worker's incentive to achieve higher income, thereby inducing an increase in the degree of specialisation. The genuine contribution of this paper is that both supply side and demand side policies may stimulate long-run economic growth, and do not only induce level shifts. On the supply side, an increase in productivity of innovative workers, alongside with investment in infrastructure, human capital, and improvements in the market setting may stimulate growth. On the demand side, we find that transfers to innovative workers, a reduction in consumption taxes, an increase of labour income taxation of the specialised workforce, and a redistribution towards specialised workers will foster economic growth.

Keywords: Economic Growth; Division of Labour; Growth Policy

JEL-codes: O38; O40 September 1997

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