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We calibrate and simulate a neoclassical growth model with a variable elasticity of substitution production function and three types of technological change: labour-augmenting, capital-augmenting and investmentspecific. In this framework, we find that the decline in US labour share was caused by a large decline in capital efficiency, which led to a decrease in the ratio of effective capital to effective labour in a context in which capital and labour are gross complements. Moreover, the decline in the relative price of investment contributed to reducing the fall in US labour share, while the increase in the economic depreciation rate of US fixed assets accounted for a small reduction in US labour share. 636 ECONOMICA [OCTOBER implicitly recognizes it when he writes: 'Until the laws of thermodynamics are repealed, I shall continue to relate outputs to inputs-i.e. to believe in production functions'. Both the intensity and direction of the changes in the relative factor shares will depend on the shape of the production function and the bias of technological change.According to neoclassical theory, if markets are frictionless, and perfectly competitive, then gross labour share equals the output elasticity for labour, which is an increasing (resp. decreasing) function of the ratio of effective capital to effective labour if and only if the elasticity of substitution between capital and labour is lower (resp. higher) than 1. Moreover, the lower the elasticity of substitution between capital and labour, the higher the fall in gross labour share which is caused by the decrease in the ratio of effective capital to effective labour. 4 Therefore the technological forces causing a fall in the ratio of effective capital to effective labour lead to a fall in gross labour share if capital and labour are gross complements, while they lead to a rise in gross labour share if capital and labour are gross substitutes.Although there is some debate, empirical evidence increasingly indicates that the elasticity of substitution between capital and labour is lower than 1. Our own estimations support this hypothesis. However, Piketty (2014) estimates an elasticity of substitution between 1.3 and 1.6, while Karabarbounis and Neiman (2014) obtain an average estimate of 1.25. More recently, Koh et al. (2017) estimate that the elasticity of substitution between a constant elasticity of substitution (CES) aggregator of two types of capital (intellectual property and equipment plus structures) and labour is 1.13. Many studies estimate elasticities of substitution lower than 1. In their pioneering study, Arrow et al. (1961) estimate an elasticity of substitution of 0.57 using data on 24 manufacturing industries in a sample of 19 countries. David and van de Klundert (1965) and Kalt (1978) estimate elasticities of substitution equal to 0.32 and 0.76, respectively. Based on a literature survey, Hamermesh (1993) concludes that the elasticity of substitution is likely to be in the range 0.3-0.7. Chirinko et al. (2004), using an extensive panel of 1,...

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It is shown that the joint distribution of economic and political power plays a key role in determining regulatory and tax policies of national and subnational governments. If both economic and political power are evenly distributed across individuals, then regulatory and tax policies are efficient, but if they are unevenly distributed and positively correlated, then regulatory policy is used by subnational governments to redistribute income in favor of individuals with higher economic and political power at the expense of productivity and output. Consequently, the national government has to raise the tax rate to finance public expenditure. Moreover, if there exists a positive correlation between economic and political power, then the higher the fiscal gap, the larger the gap between equilibrium and efficient policies because subnational governments underestimate more the fall of public revenues caused by inefficient policies.

We apply the Chari et al. (2002Chari et al. ( , 2007 methodology to develop a growth accounting exercise for the u.s. economy during 1954-2017. Unlike them, we focus on perfect foresight models. We obtain three primary findings. First, the efficiency wedges in the entire period accurately account for the evolution of u.s. productivity and labor share. Second, the labor wedge was the main force driving the recovery of output and worked hours per capita in the eighties and nineties as well as after the Great Recession. Finally, if we replace the Cobb-Douglas assumption with a production function, which allows the factor shares to adjust competitively, the forces driving the u.s. Great Recession might not be very different from those in other oecd economies, and the forces driving the 1982 recession in the United States.