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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.

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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 95-18.

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Date of creation: Oct 1995
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Handle: RePEc:ste:nystbu:95-18
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New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126

Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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Find related papers by 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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Cited by:

  1. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, vol. 67(3), pages 287-316, October.
  2. Ulrike Vogelgesang & Ulrike Ludden, 1999. "Optimal Capital Income Taxation and Redistribution," GK working paper series 1999-10, Post Graduate Programme "Allocation on Financial Markets", University of Mannheim, revised Apr 2000.
  3. 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.
  4. 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.
  5. Steven P. Cassou & Kevin J. Lansing, 1995. "Optimal fiscal policy, public capital, and the productivity slowdown," Working Paper 9509, Federal Reserve Bank of Cleveland.
  6. Giancarlo Corsetti & Nouriel Roubini, 1996. "Optimal Government Spending and Taxation in Endgenous Growth Models," NBER Working Papers 5851, National Bureau of Economic Research, Inc.
  7. 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.
  8. repec:ebl:ecbull:v:8:y:2004:i:1:p:1-8 is not listed on IDEAS
  9. Helene Poirson Ward, 2006. "The Tax System in India; Could Reform Spur Growth?," IMF Working Papers 06/93, International Monetary Fund.
  10. 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.
  11. Steven P. Cassou & Kevin J. Lansing, 1996. "Growth effects of a flat tax," Working Paper 9615, Federal Reserve Bank of Cleveland.

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