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The Effects of Factor Taxation in a Two-Sector Model of Endogenous Growth

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Michael B. Devereux
David R. F. Love

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Abstract

This paper examines the effects of taxation in a two-sector model of endogenous growth, based on the joint accumulation of physical and human capital. Both transitional dynamics and balanced growth paths are computed, and the response to wage taxes, capital taxes, and consumption taxes is explored. Welfare costs of alternative tax regimes are computed. The capital tax is by far the least efficient method of generating revenue. The differences between taxes with respect to their effects on long-run growth rates are relatively unimportant. The key difference between the capital tax and wage or consumption taxes lies in their different level effects on the permanent paths of output, consumption, and labour supply.

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File URL: http://links.jstor.org/sici?sici=0008-4085%28199408%2927%3A3%3C509%3ATEOFTI%3E2.0.CO%3B2-8
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 27 (1994)
Issue (Month): 3 (August)
Pages: 509-36
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Handle: RePEc:cje:issued:v:27:y:1994:i:3:p:509-36

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  1. Stephen P. Cassou & Kevin J. Lansing, 2002. "Growth effects of shifting from a progressive tax system to a flat tax," Working Papers in Applied Economic Theory 2000-15, Federal Reserve Bank of San Francisco. [Downloadable!]
  2. William Scarth, 2003. "Population Aging, Productivity, and Growth in Living Standards," Social and Economic Dimensions of an Aging Population Research Papers 90, McMaster University. [Downloadable!]
  3. Mihaela Pintea & Stephen Turnovsky, 2006. "Congestion and Fiscal Policy in a Two-Sector Economy with Public Capital: A Quantitative Assessment," Computational Economics, Springer, vol. 28(2), pages 177-209, September. [Downloadable!] (restricted)
  4. Mireille Laroche & Marcel Mérette & G. C. Ruggeri, 1999. "On the Concept and Dimension of Human Capital in a Knowledge-Based," Canadian Public Policy, University of Toronto Press, vol. 25(1), pages 87-100, March. [Downloadable!] (restricted)
  5. Steven P. Cassou & Kevin J. Lansing, 1996. "Growth effects of a flat tax," Working Paper 9615, Federal Reserve Bank of Cleveland. [Downloadable!]
  6. Stephen J. Turnovsky, 2000. "Growth in an open economy: some recent developments," Research series 200005-1, National Bank of Belgium. [Downloadable!]
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  7. Fredriksson, Anders, 2007. "Compositional and dynamic Laffer effects in models with constant returns to scale," Research Papers in Economics 2007:2, Stockholm University, Department of Economics, revised 21 Apr 2007. [Downloadable!]
  8. Carlo Perroni, 1997. "Joint Production of Goods and Knowledge: Implications for Tax Reform," International Tax and Public Finance, Springer, vol. 4(2), pages 149-165, May. [Downloadable!] (restricted)
  9. Berthold Wigger, 2000. "On the Intergenerational Incidence of Wage and Consumption Taxes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. Jinli Zeng & Jie Zhang, 2001. "Long-run growth effects of taxation in a non-scale growth model with innovation," Departmental Working Papers wp0104, National University of Singapore, Department of Economics. [Downloadable!]
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  11. William Scarth, 2003. "Population Aging, Productivity, and Growth in Living Standards," Quantitative Studies in Economics and Population Research Reports 380, McMaster University. [Downloadable!]
  12. Capolupo, Rosa, 2008. "The New Growth Theories and Their Empirics after Twenty Years," Economics Discussion Papers 2008-27, Kiel Institute for the World Economy. [Downloadable!]
  13. Zeng, J & Jie Zhang, . "Optimal social security in a dynastic model with investment externalities and endogenous fertility," MRG Discussion Paper Series 1006, School of Economics, University of Queensland, Australia. [Downloadable!]
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  14. Gian Maria Milesi-Ferrett & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," NBER Working Papers 5317, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Enrique G. Mendoza & Gian Maria Milesi-Ferretti & Patrick Asea, 1995. "Do taxes matter for long-run growth?: Harberger's superneutrality conjecture," International Finance Discussion Papers 511, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  16. Jie Zhang & James Davies & Jinli Zeng & Stuart McDonald, . "Optimal taxation in a growth model with public consumption and home production," MRG Discussion Paper Series 1707, School of Economics, University of Queensland, Australia. [Downloadable!]
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  17. Cruz Angel Echevarría, 2003. "Life Expectancy, Schooling Time and Endogenous Growth," DFAEII Working Papers 200211, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  18. Mustafa Babiker, . "Taxation And Labor Supply Decision: The Implications of Human Capital Acumulation," API-Working Paper Series 0205, Arab Planning Institute - Kuwait, Information Center. [Downloadable!]
  19. Steven P. Cassou & Kevin J. Lansing, 2002. "Tax reform and public-sector expenditures," Working Papers in Applied Economic Theory and Econometrics 98-09, Federal Reserve Bank of San Francisco. [Downloadable!]
  20. Mihaela Pintea, 2004. "Fiscal Policy in a Two-Sector Economy with Public Capital and Congestion," Working Papers 0402, Florida International University, Department of Economics. [Downloadable!]
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  21. Jinli Zeng, 2002. "Reexamining the Interaction between Innovation and Capital Accumulation," Departmental Working Papers wp0203, National University of Singapore, Department of Economics. [Downloadable!]
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  22. James B. Davies & Jie Zhang & Jinli Zeng, 2000. "Optimal tax mix in a two-sector growth model with transitional dynamics," Departmental Working Papers wp0105, National University of Singapore, Department of Economics. [Downloadable!]
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