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

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  • Gian Maria Milesi-Ferretti
  • Nouriel Roubini

Abstract

The effects of income and consumption taxation are examined in the context of modesl 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 captial) 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 implicatiions for the optiaml intertemporal choice of tax instruments.

Suggested Citation

  • Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    • Handle: RePEc:ste:nystbu:95-18
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    2. Emmanuel Atta Anaman & Samuel Gameli Gadzo & John Gartchie Gatsi & Mavis Pobbi, 2017. "Fiscal Aggregates, Government Borrowing and Economic Growth in Ghana An error correction approach," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 7(2), pages 1-5.
    3. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
    4. Ms. Helene Poirson, 2006. "The Tax System in India: Could Reform Spur Growth?," IMF Working Papers 2006/093, International Monetary Fund.
    5. repec:ebl:ecbull:v:8:y:2004:i:1:p:1-8 is not listed on IDEAS
    6. Ulrike Vogelgesang, 2001. "Optimal Capital Income Taxation and Redistribution," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(4), pages 412-434, August.
    7. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 911-935, June.
    8. Manuel Gomez, 2003. "Effects of Flat-Rate Taxes: to What Extent Does the Leisure Specification Matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 404-430, April.
    9. Gomez, Manuel A., 2007. "Optimal tax structure in a two-sector model of endogenous growth," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 305-325, June.
    10. Steven P. Cassou & Kevin J. Lansing, 1996. "Growth effects of a flat tax," Working Papers (Old Series) 9615, Federal Reserve Bank of Cleveland.
    11. Gulgun Cigdem & Merve Altaylar, 2021. "Nonlinear Relationship between Economic Growth and Tax Revenue in Turkey: Hidden Cointegration Approach," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul University, Faculty of Economics, vol. 71(1), pages 21-38, June.
    12. Xavier Pautrel, 2009. "Time-separable Utility, Leisure and Human Capital Accumulation: What New Implications for the Environment-Growth Nexus?," Working Papers 2009.104, Fondazione Eni Enrico Mattei.
    13. Giancarlo Corsetti & Nouriel Roubini, 1996. "Optimal Government Spending and Taxation in Endgenous Growth Models," NBER Working Papers 5851, National Bureau of Economic Research, Inc.
    14. Pablo Serra & Daniel Hojman, 2000. "A Note on the Optimality of the Cash Flow Tax," Documentos de Trabajo 83, Centro de Economía Aplicada, Universidad de Chile.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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