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Flat-Rate Taxes, Government Spending on Education, and Growth

Author

Listed:
  • Gerhard Glomm

    (Michigan State University)

  • B. Ravikumar

    (University of Iowa)

Abstract

We address three questions in this paper. First, what is the impact on growth of changes in flat-rate taxes when government spending on education affects private decisions to accumulate human capital? Second, are the growth effects negligible when we simultaneously change taxes and government spending on education? Third, what are the implications for time allocated to learning when we change taxes and spending? For an economy calibrated to the U.S. data along the lines of Lucas (1990), we find that the growth effects of changes in capital income tax rates are negligible despite the distortionary government spending; simultaneous changes in taxes and spending on education have modest effects on growth; and the learning time is unresponsive to changes in taxes. While the first two results are consistent with the U.S. data, the third one is not: during the 20th century, the learning time has increased dramatically along with taxes. (Copyright: Elsevier)

Suggested Citation

  • Gerhard Glomm & B. Ravikumar, 1998. "Flat-Rate Taxes, Government Spending on Education, and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 306-325, January.
  • Handle: RePEc:red:issued:v:1:y:1998:i:1:p:306-325
    DOI: 10.1006/redy.1997.0001
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    References listed on IDEAS

    as
    1. Card, David & Krueger, Alan B, 1992. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 1-40, February.
    2. Juster, F Thomas & Stafford, Frank P, 1991. "The Allocation of Time: Empirical Findings, Behavioral Models, and Problems of Measurement," Journal of Economic Literature, American Economic Association, vol. 29(2), pages 471-522, June.
    3. 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.
    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.
    5. King, Robert G & Rebelo, Sergio, 1990. "Public Policy and Economic Growth: Developing Neoclassical Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 126-150, October.
    6. Gerhard Glomm & B. Ravikumar, 2001. "Human capital accumulation and endogenous public expenditures," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 807-826, August.
    7. Jacob Mincer, 1994. "Investment in U.S. Education and Training," NBER Working Papers 4844, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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