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Growth and welfare: Distorting versus non-distorting taxes

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  • Gustavo A. Marrero
  • Alfonso Novales

    ()
    (Departamento de Economía Cuantitativa, Universidad Complutense de Madrid,)

Abstract

In an infinitely-lived framework, taxing capital income may be growth and welfare enhancing when it allows for correcting distorting externalities in the competitive equilibrium allocation. This is the case when public capital is subject to congestion by private capital or total income [Fisher and Turnovsky (1998)] or when government expenditure exerts an external e.ect on physical capital [Corsetti and Roubini (1996)]. However, none of these features appear in simple one-sector endogenous growth models with public capital. Alternatively, we consider certain realistic fiscal policy constraints in a simple one-sector growth model with productive and unproductive public expenditures, to show that raising revenues through factor income taxes may be preferred to using lump-sum taxes.

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Bibliographic Info

Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0105.

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Length: 27 pages
Date of creation: 2001
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Handle: RePEc:ucm:doicae:0105

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Keywords: Endogenous growth; distorting taxes; public investment.;

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References

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Citations

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Cited by:
  1. Andreas Irmen & Johanna Kuehnel, 2008. "Productive Government Expenditure and Economic Growth," CESifo Working Paper Series 2314, CESifo Group Munich.
  2. Thi Kim Cuong Pham, 2012. "Status-seeking and economic growth: the Barro model revisited," Working Papers of BETA 2012-06, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Gustavo A. Marrero & Alfonso Novales, 2003. "Taxing or subsidizing Factors' rents in a simple endogenous growth model with public capital," Documentos de Trabajo del ICAE 0303, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  4. Gustavo A. Marrero, 2005. "Revisiting the optimal stationary public investment policy in endogenous growth economies," Documentos de Trabajo del ICAE 0509, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  5. Cavalcanti, Carlos B. & Marrero, Gustavo A. & Le, Tuan Minh, 2014. "Measuring the impact of debt-financed public investment," Policy Research Working Paper Series 6766, The World Bank.
  6. Marrero, Gustavo A. & Novales, Alfonso, 2007. "Income taxes, public investment and welfare in a growing economy," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3348-3369, October.
  7. Gustavo Marrero, 2010. "Tax-mix, public spending composition and growth," Journal of Economics, Springer, vol. 99(1), pages 29-51, February.
  8. José Manuel González-Páramo & Diego Martínez López, . "Public Investment and Convergence in the Spanish Regions," Studies on the Spanish Economy 112, FEDEA.

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