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The "Growth Tax" in the United States


  • Scully, Gerald W


By providing public goods, including law and order, national defense, and income redistribution that expands the gains from exchange (the scope and membership of the constitutional agreement), government expenditures act as a positive externality on the growth rate. Beyond that level, taxes act as a negative externality. In this paper, a simple model is formulated and the optimal (growth-maximizing) tax rate found. Empirical estimation finds it to be in the range of 21.5-22.9 percent. The effect of taxation beyond this level is a cumulative loss of about $30 trillion (1972 dollars) in GNP over the period 1949-89. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Scully, Gerald W, 1995. "The "Growth Tax" in the United States," Public Choice, Springer, vol. 85(1-2), pages 71-80, October.
  • Handle: RePEc:kap:pubcho:v:85:y:1995:i:1-2:p:71-80

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    References listed on IDEAS

    1. Roger B. Myerson, 1992. "Incentives to Cultivate Favored Minorities under Alternative Electoral Systems," Discussion Papers 1000, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Fair, Ray C, 1978. "The Effect of Economic Events on Votes for President," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 159-173, May.
    3. Souren Soumbatiants & Henry Chappell & Eric Johnson, 2006. "Using state polls to forecast U.S. Presidential election outcomes," Public Choice, Springer, vol. 127(1), pages 207-223, April.
    4. repec:cup:apsrev:v:69:y:1975:i:01:p:141-154_24 is not listed on IDEAS
    5. Crain, W Mark & Messenheimer, Harold C & Tollison, Robert D, 1993. "The Probability of Being President," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 683-689, November.
    6. repec:cup:apsrev:v:87:y:1993:i:04:p:856-869_10 is not listed on IDEAS
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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. Minford, Patrick & Meenagh, David & Wang, Jiang, 2007. "Growth and relative living standards - testing Barriers to Riches on post-war panel data," Cardiff Economics Working Papers E2007/12, Cardiff University, Cardiff Business School, Economics Section.
    3. 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.
    4. Gordon Brady, 2015. "Austerity in the European Union: Keynesian Stimulus versus Fiscal Consolidation," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 55-65, March.
    5. Shagas, Natalia & Bojechkova, A.V. & Pervishin, Y.N. & Perevyshina, E.A., 2016. "Modeling of State Influence on the Processes of Economic Growth," Working Papers 2132, Russian Presidential Academy of National Economy and Public Administration.
    6. 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.
    7. 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.
    8. 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.
    9. repec:rfa:aefjnl:v:4:y:2017:i:3:p:47-55 is not listed on IDEAS
    10. repec:ids:ijsuse:v:9:y:2017:i:3:p:231-249 is not listed on IDEAS
    11. Andrew Phiri, 2017. "Nonlinearities in Wagner's law: further evidence from South Africa," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(3), pages 231-249.
    12. Giuseppe Di Liddo, 2015. "Urban sprawl and regional growth: first empirical evidence from Italian Regions," Working papers 28, Società Italiana di Economia Pubblica.
    13. Asimakopoulos, Stylianos & Karavias, Yiannis, 2016. "The impact of government size on economic growth: A threshold analysis," Economics Letters, Elsevier, vol. 139(C), pages 65-68.
    14. Giuseppe Di Liddo & Cosimo Magazzino & Francesco Porcelli, 2015. "Decentralization, Growth And Optimal Government Size In The Italian Regional Framework," Working Papers 0115, CREI Università degli Studi Roma Tre, revised 2015.
    15. 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.
    16. 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.
    17. repec:rss:jnljef:v3i2p1 is not listed on IDEAS

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