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

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Author Info
Gian Maria Milesi-Ferretti
Nouriel Roubini

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Abstract

The effects of income and consumption taxation are examined in the context of modesl 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 captial) 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 implicatiions for the optiaml intertemporal choice of tax instruments.

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Publisher Info
Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 95-18.

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Date of creation: Oct 1995
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Handle: RePEc:ste:nystbu:95-18

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Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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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.:
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  8. Easterly, William & Rebelo, Sergio, 1993. "Marginal income tax rates and economic growth in developing countries," European Economic Review, Elsevier, vol. 37(2-3), pages 409-417, April. [Downloadable!] (restricted)
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  12. Gian Maria Milesi-Ferretti & Enrique G. Mendoza & Patrick K. Asea, 1995. "Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture," IMF Working Papers 95/79, International Monetary Fund.
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  22. Nicholas Bull, 1993. "When all the optimal dynamic taxes are zero," Working Paper Series / Economic Activity Section 137, Board of Governors of the Federal Reserve System (U.S.).
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  27. 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)
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  40. 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)
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  42. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1994. "Optimal Fiscal Policy in a Business Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 617-52, August. [Downloadable!] (restricted)
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  43. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [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. Hélène Poirson, 2006. "The Tax System in India: Could Reform Spur Growth?," IMF Working Papers 06/93, International Monetary Fund. [Downloadable!]
  2. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, vol. 67(3), pages 287-316, October. [Downloadable!] (restricted)
  3. Ulrike Ludden, 2000. "Optimal Capital Income Taxation and Redistribution," Econometric Society World Congress 2000 Contributed Papers 0658, Econometric Society. [Downloadable!]
    Other versions:
  4. 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)
  5. Giancarlo Corsetti & Nouriel Roubini, 1996. "Optimal Government Spending and Taxation in Endgenous Growth Models," NBER Working Papers 5851, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Pablo Serra & Daniel Hojman, 2000. "A Note on the Optimality of the Cash Flow Tax," Documentos de Trabajo 83, Centro de Economía Aplicada, Universidad de Chile. [Downloadable!]
  7. Steven P. Cassou & Kevin J. Lansing, 1996. "Growth effects of a flat tax," Working Paper 9615, Federal Reserve Bank of Cleveland. [Downloadable!]
  8. Manuel A. Gómez, 2004. "The effect of the government temporal horizon on the optimal tax structure," Economics Bulletin, Economics Bulletin, vol. 8(1), pages 1-8. [Downloadable!]
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