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Tax Structure, Growth and Welfare in the UK

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Author Info
Konstantinos Angelopoulos
Jim Malley
Apostolis Philippopoulos

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Abstract

This paper studies the quantitative implications of changes in the composition of taxes for long-run growth and expected lifetime utility in the UK economy over 1970-2005. Our setup is a dynamic stochastic general equilibrium model incorporating a detailed fiscal policy structure, and whose engine of endogenous growth is human capital accumulation. The government’s spending instruments include public consumption, investment and education spending. On the revenue side, labour, capital and consumption taxes are employed. Our results suggest that if the goal of tax policy is to promote long-run growth by altering relative tax rates, then it should reduce labour taxes while simultaneously increasing capital or consumption taxes to make up for the loss in labour tax revenue. In contrast, a welfare promoting policy would be to cut capital taxes, while concurrently increasing labour or consumption taxes to make up for the loss in capital tax revenue.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2008_05.

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Date of creation: Feb 2008
Date of revision: Apr 2008
Handle: RePEc:gla:glaewp:2008_05

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Related research
Keywords: Fiscal policy; Economic growth; Welfare;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Baxter, Marianne & King, Robert G, 1993. "Fiscal Policy in General Equilibrium," American Economic Review, American Economic Association, vol. 83(3), pages 315-34, June. [Downloadable!] (restricted)
    Other versions:
  4. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland. [Downloadable!]
  5. Angelopoulos, Konstantinos & Economides, George & Kammas, Pantelis, 2007. "Tax-spending policies and economic growth: Theoretical predictions and evidence from the OECD," European Journal of Political Economy, Elsevier, vol. 23(4), pages 885-902, December. [Downloadable!] (restricted)
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    Other versions:
  15. Schmitt-Grohe, Stephanie & Uribe, Martin, 2007. "Optimal simple and implementable monetary and fiscal rules," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1702-1725, September. [Downloadable!] (restricted)
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  17. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Solving dynamic general equilibrium models using a second-order approximation to the policy function," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 755-775, January. [Downloadable!] (restricted)
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  18. Connolly, Michelle, 2004. "Human Capital and Growth in the Postbellum South: A Separate but Unequal Story," The Journal of Economic History, Cambridge University Press, vol. 64(02), pages 363-399, June. [Downloadable!]
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  20. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc. [Downloadable!]
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  22. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dimitris Papageorgiou, 2009. "Macroeconomic Implications of Alternative Tax Regimes: The Case of Greece," Working Papers 97, Bank of Greece. [Downloadable!]
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