Fiscal policy in an endogenous growth model with human capital accumulation

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Abstract

In this paper we present an endogenous growth model with physical and human capital accumulation and study the effects of labor and capital income taxation on the transitional dynamics to the balanced path. We show that parameters on preferences, technologies and depreciation rates, as well as fiscal policy parameters, are relevant to determine qualitatively the dynamic behavior of the economy. We also offer a measure of the inefficiency derived from the taxation of capital earnings. Finally, we consider the taxation welfare cost in two non-trivial generalizations of our basic model which include the case of physical capital in the educational sector and leisure as an additional argument in the utility function.

Original languageEnglish (US)
Pages (from-to)323-355
Number of pages33
JournalJournal of Monetary Economics
Volume42
Issue number2
DOIs
StatePublished - Jul 28 1998

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Keywords

  • Endogenous growth
  • H22
  • Human capital
  • I21
  • O41
  • Taxation
  • Welfare cost

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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