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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. Juster, F. Thomas & Stafford, Frank P., 1990. "The Allocation of Time: Empirical Findings, Behavioural Models, and Problems of Measurement," Working Paper Series 258, Research Institute of Industrial Economics.
  2. Nancy L. Stokey & Sergio Rebelo, 1993. "Growth Effects of Flat-Rate Taxes," NBER Working Papers 4426, National Bureau of Economic Research, Inc.
  3. Lutz Hendricks, . "Growth, Death, and Taxes," Working Papers 97/7, Arizona State University, Department of Economics.
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  8. Martin Feldstein & Andrew Samwick, 1992. "Social Security Rules and Marginal Tax Rates," NBER Working Papers 3962, National Bureau of Economic Research, Inc.
  9. Eric M. Engen & Jonathan Skinner, 1996. "Taxation and Economic Growth," NBER Working Papers 5826, National Bureau of Economic Research, Inc.
  10. James Davies & John Whalley, 1989. "Taxes and Capital Formation: How Important is Human Capital?," NBER Working Papers 2899, National Bureau of Economic Research, Inc.
  11. Gary S. Becker & Nigel Tomes, 1994. "Human Capital and the Rise and Fall of Families," NBER Chapters, in: Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition), pages 257-298 National Bureau of Economic Research, Inc.
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  18. 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 818-34, August.
  19. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
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  25. Hendricks, Lutz, . "Taxation and Long-Run Growth," Working Papers 96/2, Arizona State University, Department of Economics.
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