Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis
38 Pages Posted: 15 Feb 2006
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Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis
Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis
Date Written: June 1995
Abstract
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 some implications for the optimal intertemporal choice of tax instruments.
JEL Classification: E62, O41
Suggested Citation: Suggested Citation
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