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Fiscal Policy Impacts on Growth: an OECD Cross-Country Study with an Emphasis on Human Capital Accumulation

Author

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  • Diego d'Andria

    () (LUISS Guido Carli University, Rome)

  • Giuseppe Mastromatteo

    () (Università Cattolica del Sacro Cuore, Milan)

Abstract

A growing body of literature tests the effects of different tax structures on long-run economic growth. We argue that these tests do not properly account for endogeneity between supposedly independent variables. We run several cross-country ordinary least squares tests with special attention to human capital, and show how education choice behaviors are affected by different tax mixes. The results obtained by microeconomic theory are validated, and they imply that accumulation rates of human capital cannot be deemed independent from savings taxation. Our results also show that more progressive labor taxation does not appear to be correlated with lower investments in education, contrary to what one would expect from microeconomic theory. We discuss possible implications, and suggest that a likely explanation lies in the outcome of redistribution policies reducing credit constraints of poorer households, thus allowing them easier access to education and, consequently, higher aggregate human capital accumulation.

Suggested Citation

  • Diego d'Andria & Giuseppe Mastromatteo, 2012. "Fiscal Policy Impacts on Growth: an OECD Cross-Country Study with an Emphasis on Human Capital Accumulation," CEIS Research Paper 217, Tor Vergata University, CEIS, revised 18 Jan 2012.
  • Handle: RePEc:rtv:ceisrp:217
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    Keywords

    tax mix; human capital; growth; cross-country;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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