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Optimal Taxation, Economic Growth and Income Inequality


  • Scully, Gerald W


That there is a trade-off between equity and efficiency (economic growth) is well known. Two models have been developed that link government spending and taxation to economic growth. This paper uses these models to provide estimates of the growth-maximizing tax rate. Then, a two equation structural model is developed and estimated that is used to find the trade-off rate between economic growth and income inequality and the growth-maximizing level of income inequality for the United States over the period 1960-1990. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • Scully, Gerald W, 2003. "Optimal Taxation, Economic Growth and Income Inequality," Public Choice, Springer, vol. 115(3-4), pages 299-312, June.
  • Handle: RePEc:kap:pubcho:v:115:y:2003:i:3-4:p:299-312

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    References listed on IDEAS

    1. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1301-1338.
    2. Rodrigo Cerda & Rodrigo Vergara, 2007. "Business cycle and political election outcomes: Evidence from the Chilean democracy," Public Choice, Springer, vol. 132(1), pages 125-136, July.
    3. Marco Bonomo & Cristina Terra, 2005. "Elections And Exchange Rate Policy Cycles," Economics and Politics, Wiley Blackwell, vol. 17, pages 151-176, July.
    4. Torsten Persson & Guido Tabellini, 2003. "Do Electoral Cycles Differ Across Political Systems?," Working Papers 232, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    5. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    6. Brender, Adi & Drazen, Allan, 2003. "Where Does the Political Budget Cycle Really Come From?," CEPR Discussion Papers 4049, C.E.P.R. Discussion Papers.
    7. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    8. Berger, Helge & Woitek, Ulrich, 1997. "Searching for Political Business Cycles in Germany," Public Choice, Springer, vol. 91(2), pages 179-197, April.
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    Cited by:

    1. Giuseppe Di Liddo, 2015. "Urban sprawl and regional growth: empirical evidence from Italian Regions," Economics Bulletin, AccessEcon, vol. 35(4), pages 2141-2160.
    2. Andrew Phiri, 2016. "The Growth Trade-off between Direct and Indirect Taxes in South Africa: Evidence from a STR Model," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(3 (Fall)), pages 233-250.
    3. Bekzod ABDULLAEV & Laszlo KONYA, 2014. "Growth Maximizing Tax Rate for Uzbekistan," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 14(1), pages 59-72.
    4. repec:exl:25engi:v:28:y:2017:i:2:p:155-161 is not listed on IDEAS
    5. Motloja, Lehlohonolo & Makhoana, Tsholofelo & Kassoma, Rooyen & Houdman, Rozadian & Phiri, Andrew, 2016. "Changes in the optimal tax rate in South Africa prior and subsequent to the global recession period," MPRA Paper 74342, University Library of Munich, Germany.
    6. Dushko, Josheski & Darko, Lazarov & Cane, Koteski, 2011. "Analysis of the optimal size of the government consumption," MPRA Paper 32063, University Library of Munich, Germany.
    7. Olufemi Muibi SAIBU, 2015. "Optimal tax rate and economic growth. Evidence from Nigeria and South Africa," EuroEconomica, Danubius University of Galati, issue 1(34), pages 41-50, May.
    8. repec:rjr:romjef:v::y:2017:i:4:p:152-165 is not listed on IDEAS
    9. Robert Pater & Tomasz Skica, 2014. "The productivity of public and private sector in Poland," Business and Economic Horizons (BEH), Prague Development Center, vol. 10(2), pages 120-137, July.
    10. ONAKOYA, Adegbemi Babatunde & AFINTINNI, Oluwatobi Ibukun, 2016. "Taxation and Economic Growth in Nigeria," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 4(4), pages 199-210, December.
    11. repec:wsi:serxxx:v:62:y:2017:i:02:n:s0217590815501167 is not listed on IDEAS
    12. Tony Addison & Miguel Niño-Zarazúa & Jukka Pirttilä, 2018. "Fiscal policy, state building and economic development," WIDER Working Paper Series 005, World Institute for Development Economic Research (UNU-WIDER).
    13. Di Liddo, Giuseppe, 2015. "Urban sprawl and regional growth: empirical evidence from Italian Regions," Working Papers 1505, SIET Società Italiana di Economia dei Trasporti e della Logistica.
    14. Coll Sebastian, 2014. "Is There Too Much Government in Developed Countries? A Time-Series Analysis of 24 OECD-Economies," Journal of Heterodox Economics, De Gruyter Open, vol. 1(1), pages 1-30, June.
    15. Viegas, Miguel & Ribeiro, Ana Paula, 2013. "Welfare-improving government behavior and inequality in a heterogeneous agents model," Journal of Macroeconomics, Elsevier, vol. 37(C), pages 146-160.

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