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Taxation and Long-Run Growth

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Author Info
Hendricks, Lutz A.

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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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Publisher 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: 05 May 2004
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Publication status: Published in Journal of Monetary Economics, 1999, Vol. 43, No. 2, pp. 411-434.
Handle: RePEc:isu:genres:11933

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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.:
  1. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. N. Gregory Mankiw, 1995. "The Growth of Nations," Harvard Institute of Economic Research Working Papers 1732, Harvard - Institute of Economic Research.
    Other versions:
  3. Hendricks, Lutz A., 2004. "Taxation and Long-Run Growth," Staff General Research Papers 11933, Iowa State University, Department of Economics.
    Other versions:
  4. King, Robert G & Rebelo, Sergio T, 1993. "Transitional Dynamics and Economic Growth in the Neoclassical Model," American Economic Review, American Economic Association, vol. 83(4), pages 908-31, September. [Downloadable!] (restricted)
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  5. Heckman, James J, 1976. "A Life-Cycle Model of Earnings, Learning, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S11-44, August. [Downloadable!] (restricted)
  6. Eric M. Engen & Jonathan Skinner, 1996. "Taxation and Economic Growth," NBER Working Papers 5826, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-38, November. [Downloadable!] (restricted)
  8. Becker, Gary S & Tomes, Nigel, 1986. "Human Capital and the Rise and Fall of Families," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S1-39, July. [Downloadable!] (restricted)
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  9. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 813-34, August.
  10. Stokey, Nancy L & Rebelo, Sergio, 1995. "Growth Effects of Flat-Rate Taxes," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 519-50, June. [Downloadable!] (restricted)
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  11. Welch, F, 1970. "Education in Production," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 35-59, Jan.-Feb.. [Downloadable!] (restricted)
  12. Duncan, Greg J & Hoffman, Saul, 1979. "On-the-Job Training and Earnings Differences by Race and Sex," The Review of Economics and Statistics, MIT Press, vol. 61(4), pages 594-603, November. [Downloadable!] (restricted)
  13. 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. [Downloadable!] (restricted)
  14. Salvador Ortigueira & Manuel Santos, 1996. "On convergence in endogenous growth models," Discussion Paper / Institute for Empirical Macroeconomics 110, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  15. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-29, April. [Downloadable!] (restricted)
  16. James Davies & John Whalley, 1989. "Taxes and Capital Formation: How Important is Human Capital?," NBER Working Papers 2899, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September. [Downloadable!] (restricted)
  18. Lutz Hendricks, 2001. "Growth, Death, and Taxes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 26-57, January. [Downloadable!] (restricted)
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  19. Poterba, James M., 1998. "The rate of return to corporate capital and factor shares: new estimates using revised national income accounts and capital stock data," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48, pages 211-246, June. [Downloadable!] (restricted)
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  20. Robert E. Lucas, Jr., 1989. "On the Mechanics of Economic Development," NBER Reprints 1176, National Bureau of Economic Research, Inc.
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  21. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April. [Downloadable!] (restricted)
  22. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S126-50, October. [Downloadable!] (restricted)
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  23. Trostel, Philip A, 1993. "The Effect of Taxation on Human Capital," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 327-50, April. [Downloadable!] (restricted)
  24. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Full references

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. Lutz Hendricks, 2000. "Do Redistributive Policies Promote Intergenerational Mobility?," Econometric Society World Congress 2000 Contributed Papers 0607, Econometric Society. [Downloadable!]
  2. Hendricks, Lutz, . "Taxation and Long-Run Growth," Working Papers 96/2, Arizona State University, Department of Economics. [Downloadable!]
    Other versions:
  3. Paul A. de Hek, 2005. "On Taxation in a Two-Sector Endogenous Growth Model with Endogenous Labor Supply," DEGIT Conference Papers c010_010, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
    Other versions:
  4. Bas Jacobs & Lans Bovenberg, 2008. "Optimal Taxation of Human Capital and the Earnings Function," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Lutz Hendricks, . "Growth, Death, and Taxes," Working Papers 97/7, Arizona State University, Department of Economics. [Downloadable!]
    Other versions:
  6. Bénabou, Roland, 2000. "Tax And Education Policy In A Heterogeneous Agent Economy: What Levels Of Redistribution Maximize Growth And Efficiency?," CEPR Discussion Papers 2446, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Pedro Cavalcanti Ferreira & Samuel de Abreu Pess, 2002. "Can the Cost of Education Explain the Poverty of Nations? Measuring the Impact of Factor Taxation and Life Expectancy on Income Differences," Penn CARESS Working Papers c5f20e0f725b0c206ad309da9, UCLA Department of Economics. [Downloadable!]
  8. Manuel Gomez, 2003. "Effects of Flat-Rate Taxes: to What Extent Does the Leisure Specification Matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 404-430, April. [Downloadable!] (restricted)
  9. Bovenberg, A Lans & Jacobs, Bas, 2001. "Redistribution and Education Subsidies are Siamese Twins," CEPR Discussion Papers 3099, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  10. James B. Davies & Jie Zhang & Jinli Zeng, 2000. "Optimal tax mix in a two-sector growth model with transitional dynamics," Departmental Working Papers wp0105, National University of Singapore, Department of Economics. [Downloadable!]
    Other versions:
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