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Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis

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  • Gian Maria Milesi-Ferrett
  • Nouriel Roubini

Abstract

The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capital. The different channels through which these taxes affect economic growth are discussed, and it is shown that in general the taxation of factor incomes (human and physical capital) is growth-reducing. The effects of consumption taxation on growth depend crucially on the elasticity of labor supply, and therefore on the specification of the leisure activity. The paper also derives implications for the optimal intertemporal choice of tax instruments.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5317.

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Date of creation: Oct 1995
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Publication status: Published as "Growth Effects of Income and Consumption Taxes", Journal of Money, Credit and Banking, Vol. 30, no. 4 (November 1998): 721-744.
Handle: RePEc:nbr:nberwo:5317

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Cited by:
  1. Steven P. Cassou & Kevin J. Lansing, 1995. "Optimal fiscal policy, public capital, and the productivity slowdown," Working Paper 9509, Federal Reserve Bank of Cleveland.
  2. Ulrike Ludden, 2000. "Optimal Capital Income Taxation and Redistribution," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0658, Econometric Society.
  3. repec:ebl:ecbull:v:8:y:2004:i:1:p:1-8 is not listed on IDEAS
  4. Giancarlo Corsetti & Nouriel Roubini, 1996. "Optimal Government Spending and Taxation in Endgenous Growth Models," NBER Working Papers 5851, National Bureau of Economic Research, Inc.
  5. 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.
  6. Xavier Pautrel, 2009. "Time-separable Utility, Leisure and Human Capital Accumulation: What New Implications for the Environment-Growth Nexus?," Working Papers, Fondazione Eni Enrico Mattei 2009.104, Fondazione Eni Enrico Mattei.
  7. Steven P. Cassou & Kevin J. Lansing, 1996. "Growth effects of a flat tax," Working Paper 9615, Federal Reserve Bank of Cleveland.
  8. Hélène Poirson, 2006. "The Tax System in India," IMF Working Papers 06/93, International Monetary Fund.
  9. Gomez, Manuel A., 2007. "Optimal tax structure in a two-sector model of endogenous growth," Journal of Macroeconomics, Elsevier, Elsevier, vol. 29(2), pages 305-325, June.
  10. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, Springer, vol. 67(3), pages 287-316, October.
  11. Pablo Serra & Daniel Hojman, 2000. "A Note on the Optimality of the Cash Flow Tax," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 83, Centro de Economía Aplicada, Universidad de Chile.

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