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Tax Evasion, Human Capital, and Productivity-Induced Tax Rate Reduction

  • Max Gillman
  • Michal Kejak

Growth in the human capital sector’s productivity explains in part how US postwar growth and welfare could have increased while US tax rates declined. Modeling tax evasion within an endogenous growth model with human capital, an upward trend in goods and human capital sectors gradually decreases tax evasion and allows for tax rate reduction. Using estimated goods and human capital sectoral productivities, the model explains 30 percent of the actual decline in a weighted average of postwar US top marginal personal and corporate tax rates. The productivity increases are asymmetric in a fashion related to that of McGrattan and Prescott.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/675328
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File URL: http://www.jstor.org/stable/full/10.1086/675328
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Journal of Human Capital.

Volume (Year): 8 (2014)
Issue (Month): 1 ()
Pages: 42 - 79

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Handle: RePEc:ucp:jhucap:doi:10.1086/675328
Contact details of provider: Web page: http://www.journals.uchicago.edu/JHC/

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