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Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis

  • Gian Maria Milesi-Ferrett
  • Nouriel Roubini

The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capital. The different channels through which these taxes affect economic growth are discussed, and it is shown that in general the taxation of factor incomes (human and physical capital) is growth-reducing. The effects of consumption taxation on growth depend crucially on the elasticity of labor supply, and therefore on the specification of the leisure activity. The paper also derives implications for the optimal intertemporal choice of tax instruments.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5317.

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Date of creation: Oct 1995
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Publication status: Published as "Growth Effects of Income and Consumption Taxes", Journal of Money, Credit and Banking, Vol. 30, no. 4 (November 1998): 721-744.
Handle: RePEc:nbr:nberwo:5317
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