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Growth Effects of Flat-Rate Taxes

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  • Nancy L. Stokey
  • Sergio Rebelo

Abstract

Recent estimates of the potential growth effects of tax reform vary widely, ranging from zero (Lucas 1990) to eight percentage points (Jones, Manuelli, and Rossi 1993). Using an endogenous growth model, we assess which model features and parameter values are important for determining the quantitative impact of tax reform. We find that the critical parameters are factor shares, depreciation rates, the elasticity of intertemporal substitution, and the elasticity of labor supply. The elasticities of substitution in production, on the other hand, are relatively unimportant. The quantitative estimates in several recent papers are compared with each other and with some of the evidence from U.S. experience.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4426.

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Date of creation: Aug 1993
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Publication status: published as Journal of Political Economy, vol 103, no 3, pp 519-550, June 1995.
Handle: RePEc:nbr:nberwo:4426

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