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Where the social planner, threatened by final producers and walled‐in by innovators, releases the representative consumer from the pillory, hires two anonymous referees, and convinces the Economics Minister that final firms' purchases of monopolistically produced intermediate inputs should be taxed, not subsidized, as long as output growth does not exhibit scale effects. This normative prescription hinges on an often neglected reallocation mechanism generated by the linear accumulation laws that eliminate scale effects in most endogenous growth models. (JEL O41, O31)
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Document Type: Research Article

Affiliations: Department of Economics, Dragvoll University Campus, NTNU, N-7491 Trondheim, Norway. Phone +47 735 91932, Fax: +47 735 96954

Publication date: July 1, 2013

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