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Flat-Rate Taxes, Government Spending on Education, and Growth

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  • Gerhard Glomm

    (Department of Economics, Michgan State University)

  • B. Ravikumar

    (Department of Economics, University of Iowa)

Abstract

We address three questions in this paper. First, what is the impact on growth of changes in flat-rate taxes when government spending on education affects private decisions to accumulate human capital? Second, are the growth effects negligible when we simultaneously change taxes and government spending on education? Third, what are the implications for time allocated to learning when we change taxes and spending? For an economy calibrated to the U.S. data along the lines of Lucas (1990), we find that the growth effects of changes in capital income tax rates are negligible despite the distortionary government spending; simultaneous changes in taxes and spending on education have modest effects on growth; and the learning time is unresponsive to changes in taxes. While the first two results are consistent with the U.S. data, the third one is not: during the 20th century, the learning time has increased dramatically along with taxes. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.1997.0001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 1 (1998)
Issue (Month): 1 (January)
Pages: 306-325

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Handle: RePEc:red:issued:v:1:y:1998:i:1:p:306-325

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  1. King, R.G. & Rebelo, S., 1988. "Public Policy And Economic Growth: Developing Neoclassical Implications," RCER Working Papers 225, University of Rochester - Center for Economic Research (RCER).
  2. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  3. Gerhard Glomm & B. Ravikumar, 2001. "Human capital accumulation and endogenous public expenditures," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 807-826, August.
  4. Juster, F. Thomas & Stafford, Frank P., 1990. "The Allocation of Time: Empirical Findings, Behavioural Models, and Problems of Measurement," Working Paper Series 258, Research Institute of Industrial Economics.
  5. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
  6. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June.
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