A micro-founded Kaldor-Pasinetti model considering an open economy : an inter-generational cum life-cycle approach

This paper expands Baranzini's (1991) approach by introducing the assumption of an open economy to a model of capital accumulation in an intergenerational framework. Our results show the importance of government activity and foreign trade interrelations in determining the path of the income distribution and growth processes. Government revenue derives from inheritance taxation, which is used as income transfers. Exports affect capital accumulation negatively, and the inverse result for imports is true. Moreover, the government does not have to incentivize exports; otherwise, capital accumulation will be harmed. Thus, both assumptions influence the determination of the income distribution and growth processes.