The effect of subsidies and taxes on physical and human capital in the dynamics of endogenous growth models

In this article we study the dynamics of a broad class of two-sector endogenous growth models with external effects and distortionary taxes and subsidies on physical and human capital. In our analysis we focus on local dynamics, assessing the possibility of multiple steady states and their local stability. The results show that the existence of various stationary solutions is possible. The indeterminacy of the equilibrium path is also possible, although it is more likely when there are two steady states. (C) 2011 Asociacion Cuadernos de Economia. Published by Elsevier Espana, S.L. All rights reserved.