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Does the Progressivity of Income Taxes Matter for Human Capital and Growth?

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  • ELIZABETH M. CAUCUTT
  • SELAHATTIN İMROHOROĞLU
  • KRISHNA B. KUMAR

Abstract

We develop a model with heterogeneity in skills to study the effect of tax progressivity on economic growth. The probability of becoming skilled depends positively on expenses on teacher time. We consider growth resulting from an externality due to skilled workers and from their employment in research and development. We show changes in the progressivity of taxes can have growth effects even when changes in flat rate taxes have none. The response is stronger with externality-driven growth. Progressive taxation, often suggested to reduce inequality, can increase the long-run skill premium and decrease the upward mobility of the poor. Copyright 2006 Blackwell Publishing Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 8 (2006)
Issue (Month): 1 (01)
Pages: 95-118

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Handle: RePEc:bla:jpbect:v:8:y:2006:i:1:p:95-118

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Cited by:
  1. Christian E. Weller & Manita Rao, 2008. "Can Progressive Taxation Contribute to Economic Development?," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp176, Political Economy Research Institute, University of Massachusetts at Amherst.
  2. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
  3. Schwager, Robert, 2012. "Student loans in a tiebout model of higher education," Center for European, Governance and Economic Development Research Discussion Papers 137, University of Goettingen, Department of Economics.
  4. Cecilia García-Peñalosa & Jean-François Wen, 2008. "Redistribution and entrepreneurship with Schumpeterian growth," Journal of Economic Growth, Springer, Springer, vol. 13(1), pages 57-80, March.

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