would like to thank, without implicating, an anonymous referee and, specially, an associate editor for helpful comments and suggestions. Financial support from the

This paper devises a fiscal policy by means of which the first-best optimum equilibrium is attained as a market equilibrium in the Uzawa-Lucas model when average human capital has an external effect on productivity. The optimal policy requires the use of a subsidy to investment in human capital which can be financed by a tax on labor income. Lump-sum taxation is not required to balance the government budget either in the steady state or in the transitional phase. Physical capital income should not be taxed. Alternatively, the optimal growth path can be attained by means of a subsidy to human capital. Copyright Springer-Verlag Berlin Heidelberg 2003Keywords and Phrases: Endogenous growth, Transitional dynamics, Optimal policy., JEL Classification Numbers: O41, E62.,

This paper devises a fiscal policy by means of which the first-best optimal equilibrium can be attained as a market equilibrium in an endogenous growth model with public capital. The optimal equilibrium requires that public (private) investment be zero along the transition to the balanced growth path if the initial ratio of public to private capital is higher (lower) than its long-term value. We also show that the transitional dynamics can be determined by noting that the continuity of the shadow prices involves the continuity of the consumption path.

In this paper, we show that the competitive equilibrium is optimal in the Uzawa-Lucas model with sector-specific externalities associated to human capital in the goods sector. Thus, these external effects do not provoke a market failure and do not provide a rationale for government intervention. Copyright Springer-Verlag Berlin/Heidelberg 2004Endogenous growth, Externalities, Efficiency.,

This paper analyzes the effects of consumption and leisure externalities on growth and welfare in a two‐sector endogenous growth model with human capital accumulation. Both types of externalities are shown to affect the long‐run equilibrium and optimal growth rates in a rather different way. The relationship between the steady state of the market and the centrally planned economy is also analyzed. The optimal growth path can be decentralized by resorting to consumption or labor income taxation, whereas capital income should be untaxed. Numerical simulations suggest that growth and welfare effects of mild consumption and leisure externalities may be quantitatively important.