Stabilization Policy, Learning-by-Doing, and Economic Growth
Author(s)
Martin, Philippe; Rogers, Carol Ann
Abstract
It is shown that fiscal policy, when used for stabilization purposes, can have a positive effect on the economy’s growth, on human capital accumulation, and on welfare. Stochastic productivity shocks are introduced into a model in which productivity is augmented through learning-by-doing. If future benefits of learning-by-doing are not fully internalized by workers, then recessions are periods in which opportunities for acquiring experience are foregone. Configurations of disturbances and other parameters are identified for which a countercyclical policy maximizes growth and welfare.
