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An Alternative View of Taxation and Endogenous Growth

Author

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  • Gregory W. Huffman

    (Department of Economics, Vanderbilt University)

Abstract

In this paper, a modification is made to the endogenous growth model studied by Lucas [1988]. It is shown that if individuals derive utility from their level of human capital, then a tax on the return to physical capital can raise the equilibrium growth rate. Consumption taxation may increase the growth rate. If there is an externality in production of human capital, then it may be optimal to impose a capital tax, as opposed to a subsidy, to achieve the optimal growth rate. This may be a reason why existing estimates of the welfare costs of capital taxation may be overstated.

Suggested Citation

  • Gregory W. Huffman, 2001. "An Alternative View of Taxation and Endogenous Growth," Vanderbilt University Department of Economics Working Papers 0123, Vanderbilt University Department of Economics.
    • Handle: RePEc:van:wpaper:0123
    as

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    File URL: http://www.accessecon.com/pubs/VUECON/vu01-w23.pdf
    File Function: First version, 2001
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    References listed on IDEAS

    as
    1. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
    2. Fershtman, Chaim & Murphy, Kevin M & Weiss, Yoram, 1996. "Social Status, Education, and Growth," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 108-132, February.
    3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    4. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. António Afonso & Juan Alegre, 2011. "Economic growth and budgetary components: a panel assessment for the EU," Empirical Economics, Springer, vol. 41(3), pages 703-723, December.

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    More about this item

    Keywords

    Growth; human capital; taxation;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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