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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. 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.
  2. 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.
  3. Robert G. King & Sergio T. Rebelo, 1989. "Transitional Dynamics and Economic Growth in the Neoclassical Model," NBER Working Papers 3185, National Bureau of Economic Research, Inc.
  4. Gary S. Becker & Nigel Tomes, . "Human Capital and the Rise and Fall of Families," University of Chicago - Population Research Center 84-10, Chicago - Population Research Center.
  5. 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.
  6. Salvador Ortigueira & Manuel Santos, 1996. "On convergence in endogenous growth models," Discussion Paper / Institute for Empirical Macroeconomics 110, Federal Reserve Bank of Minneapolis.
  7. Eric M. Engen & Jonathan Skinner, 1996. "Taxation and Economic Growth," NBER Working Papers 5826, National Bureau of Economic Research, Inc.
  8. Juster, F Thomas & Stafford, Frank P, 1991. "The Allocation of Time: Empirical Findings, Behavioral Models, and Problems of Measurement," Journal of Economic Literature, American Economic Association, vol. 29(2), pages 471-522, June.
  9. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
  10. Kotlikoff, Laurence J & Summers, Lawrence H, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 706-32, August.
  11. James M. Poterba, 1999. "The Rate of Return to Corporate Capital and Factor Shares: New EstimatesUsing Revised National Income Accounts and Capital Stock Data," NBER Working Papers 6263, National Bureau of Economic Research, Inc.
  12. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  13. James Davies & John Whalley, 1989. "Taxes and Capital Formation: How Important is Human Capital?," NBER Working Papers 2899, National Bureau of Economic Research, Inc.
  14. Hendricks, Lutz A., 1999. "Taxation and Long-Run Growth," Staff General Research Papers 11933, Iowa State University, Department of Economics.
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  19. Feldstein, Martin & Samwick, Andrew A., 1992. "Social Security Rules and Marginal Tax Rates," National Tax Journal, National Tax Association, vol. 45(1), pages 1-22, March.
  20. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  21. Welch, F, 1970. "Education in Production," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 35-59, Jan.-Feb..
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  23. 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.
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  25. 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.
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