On economic growth and investment income taxation in a creative region

- We study economic growth and investment income taxation in a creative region.
- We link the growth rate of the relative price of physical capital goods to that of physical capital.
- We link the growth rate of consumption to that of physical capital in the consumption goods sector.
- We study the effect that investment income taxation has on the equilibrium consumption growth rate.

We study economic growth and investment income taxation in a region that is creative in the sense of Richard Florida. Specifically, this region possesses both creative and physical capital. Of the two sectors in this region, one produces final consumption goods and the other produces investment or physical capital goods. Our analysis of the working of this creative region leads to three results. First, we derive an analytic expression that links the growth rate of the relative price of physical capital goods to the growth rate of physical capital in the consumption goods sector. Second, we highlight the connection between the growth rates of consumption and that of physical capital in the consumption goods sector. Finally, we analyze the effect that the taxation of investment income has on the equilibrium growth rate of consumption in our creative region.