Tax policy and human capital formation with public investment in education
AbstractThis paper studies the e¤ects of distortionary taxes and public in- vestment in an endogenous growth OLG model with knowledge trans- mission. Fiscal policy a¤ects growth in two respects: .rst, work time reacts to variations of prospective tax rates and modi.es knowledge formation; second, public spending enhances labour e¢ ciency 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 e¤ects: 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 InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 05/41.
Length: 29 pages
Date of creation: Jun 2005
Date of revision:
Endogenous growth; Human capital; Overlapping generations; Tax policy; Public investment.;
Other versions of this item:
- Simone Valente, 2005. "Tax Policy and Human Capital Formation with Public Investment in Education," Journal of Economics, Springer, vol. 86(3), pages 229-258, December.
- 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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