On Taxation in a Two-Sector Endogenous Growth Model with Endogenous Labor Supply
This paper studies the effects of taxation on long-run growth in a two-sector endogenous growth model with (i) physical capital as an input in the education sector and (ii) leisure as an additional argument in the utility function. Due to the flexibility of labor supply, taxation of income may induce agents to spend more or less time on leisure activities. Income taxation - the same rate applies for capital and labor income - reduces the growth rate. The contribution of endogenous leisure in this case is confined to reducing or increasing the size of the effect on the growth rate. The same is true if only labor income is taxed. However, if only capital income is taxed, the sign of the effect may reverse. In that case, the positive effect of the increase in total non-leisure time dominates the direct negative effect, implying that capital taxation increases the long-run growth rate.
|Length:||38 pages JEL Classification: E20, H20, J22, J24, O41|
|Date of creation:||Jun 2005|
|Date of revision:|
|Contact details of provider:|| Postal: Niels Bohrs Vej 9, 6700 Esbjerg|
Phone: +45 6550 2233
Fax: +45 6550 1090
Web page: http://degit.sam.sdu.dk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hendricks, Lutz, 1999. "Taxation and long-run growth1," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 411-434, April.
- Kocherlakota, Narayana R & Yi, Kei-Mu, 1997. "Is There Endogenous Long-Run Growth? Evidence from the United States and the United Kingdom," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(2), pages 235-62, May.
- Paul A. de Hek, 1999. "Endogenous technological change with leisure-dependent utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(3), pages 669-684.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Stokey, Nancy L & Rebelo, Sergio, 1995.
"Growth Effects of Flat-Rate Taxes,"
Journal of Political Economy,
University of Chicago Press, vol. 103(3), pages 519-50, June.
- Pecorino, Paul, 1993. "Tax structure and growth in a model with human capital," Journal of Public Economics, Elsevier, vol. 52(2), pages 251-271, September.
- Mino, Kazuo, 1996. "Analysis of a Two-Sector Model of Endogenous Growth with Capital Income Taxation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 227-51, February.
- Antonio Ladron de Guevara & Salvador Ortigueira & Manuel S. Santos, 1994.
"Equilibrium Dynamics in Two-Sector Models of Endogenous Growth,"
9403, Centro de Investigacion Economica, ITAM.
- Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
- Santos, Manuel S. & Ortigueira, Salvador & Ladrón de Guevara, Antonio, 1994. "Equilibrium dynamics in two-sector models of endogenous growth," UC3M Working papers. Economics 2913, Universidad Carlos III de Madrid. Departamento de Economía.
- Sergio Rebelo, 1999.
"Long Run Policy Analysis and Long Run Growth,"
Levine's Working Paper Archive
2114, David K. Levine.
- Robert J. Barro, 1988.
"Government Spending in a Simple Model of Endogenous Growth,"
NBER Working Papers
2588, National Bureau of Economic Research, Inc.
- Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
- Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
- Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
- David Carey & Harry Tchilinguirian, 2000. "Average Effective Tax Rates on Capital, Labour and Consumption," OECD Economics Department Working Papers 258, OECD Publishing.
- Ortigueira, Salvador, 1998.
"Fiscal policy in an endogenous growth model with human capital accumulation,"
Journal of Monetary Economics,
Elsevier, vol. 42(2), pages 323-355, July.
- Salvador Ortigueira, 1996. "Fiscal Policy in an Endogenous Growth Model with Human Capital Accumulation," Working Papers 9609, Centro de Investigacion Economica, ITAM.
- 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.
- Smith, William T., 1996. "Taxes, uncertainty, and long-term growth," European Economic Review, Elsevier, vol. 40(8), pages 1647-1664, November.
- Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
- Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
- Casey B. Mulligan, 2002. "Capital, Interest, and Aggregate Intertemporal Substitution," NBER Working Papers 9373, National Bureau of Economic Research, Inc.
- King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
- Hendricks, Lutz, .
"Taxation and Long-Run Growth,"
96/2, Arizona State University, Department of Economics.
- Uhlig, Harald & Yanagawa, Noriyuki, 1996. "Increasing the capital income tax may lead to faster growth," European Economic Review, Elsevier, vol. 40(8), pages 1521-1540, November.
- Chamley, Christophe, 1992. "The welfare cost of taxation and endogenous growth," UC3M Working papers. Economics 2890, Universidad Carlos III de Madrid. Departamento de Economía.
- de Hek, Paul A., 1998. "An aggregative model of capital accumulation with leisure-dependent utility," Journal of Economic Dynamics and Control, Elsevier, vol. 23(2), pages 255-276, September.
- Christophe Chamley, 1992. "The Welfare Cost of Taxation and Endogenous Growth," Boston University - Institute for Economic Development 30, Boston University, Institute for Economic Development.
When requesting a correction, please mention this item's handle: RePEc:deg:conpap:c010_010. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jan Pedersen)
If references are entirely missing, you can add them using this form.