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Taxation and Long-Run Growth

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  • Hendricks, Lutz A.

Abstract

A number of recent papers have investigated the growth effects of tax reforms in the context of neoclassical growth models with human capital. Growth effects were found to be large, but highly sensitive to parameter choices. This paper shows that growth effects are smaller and much less sensitive in models that generate realistic life-cycle behavior, which requires that households are finitely lived (but generations may be altruistically linked) and face diminishing point in time returns in human capital accumulation. Reasonable upper bounds for growth effects in such models are less than one third of some values reported in the literature. Author Keywords: Economic growth; Taxation; Human capital

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 11933.

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Date of creation: 01 Jan 1999
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Publication status: Published in Journal of Monetary Economics 1999, vol. 43, pp. 411-434
Handle: RePEc:isu:genres:11933

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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  1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Hendricks, Lutz, . "Taxation and Long-Run Growth," Working Papers 96/2, Arizona State University, Department of Economics.
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