Tax Policy and Human Capital Formation with Public Investment in Education
AbstractThis paper studies the effects of distortionary taxes and public investment in an endogenous growth OLG model with knowledge transmission. Fiscal policy affects growth in two respects: First, work time reacts to variations of prospective tax rates and modifies knowledge formation; second, public spending enhances labour efficiency but also stimulates physical capital through increased savings. It is shown that Ramsey-optimal policies reduce savings due to high tax rates on young generations, and are not necessarily growth-improving with respect to a pure private system. Non-Ramsey policies that shift the burden on adults are always growth-improving due to crowding-in effects: the welfare of all generations is unambiguously higher with respect to a private system, and there generally exists a continuum of non-optimal tax rates under which long-run growth and welfare are higher than with the Ramsey-optimal policy.
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Bibliographic InfoArticle provided by Springer in its journal Journal of Economics - Zeitschrift für Nationalökonomie.
Volume (Year): 86 (2005)
Issue (Month): 3 (December)
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Web page: http://www.springerlink.com/link.asp?id=108909
endogenous growth; human capital; overlapping generations; tax policy; public investment; E62; O41; O11;
Other versions of this item:
- Simone Valente, 2005. "Tax policy and human capital formation with public investment in education," CER-ETH Economics working paper series 05/41, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
- Simone Valente, 2005. "Tax Policy and Human Capital Formation with Public Investment in Education," Macroeconomics 0507002, EconWPA.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
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