Relative consumption, economic growth, and taxation

This paper studies the influence of consumption externalities in the Ramsey model. In contrast to the recent literature, a quite general specification of preferences is used and the concept of the effective intertemporal elasticity of substitution is introduced. We give conditions for the observational equivalence between economies with consumption externalities and externality-free economies. An additional key result is that there exist several types of instantaneous utility functions in which the decentralized solution coincides with the socially planned one in spite of the presence of consumption externalities. The conditions for optimal taxation are also derived.     

Conspicuous consumption, economic growth, and taxation

Commodities do not only serve the purpose of satisfying direct needs in the production and consumption process. Some of them are also used to display social status and to affect the position of an individual in society. The paper looks at status-seeking activities in an economic-growth context. Two questions are asked. Does status-seeking behavior accelerate economic growth? And: should capital accumulation be subsidized to correct for the status externality? The answers to both questions are ambiguous.     

Redistributive taxation,wealth distribution,and economic growth

This paper examines the relationship between wealth distribution and economic growth in an endogenous growth model with heterogeneous households and redistributive taxation. In this paper, we incorporate an endogenous determination of redistributive policy into the model, focusing on the relation between pre- and post-tax inequality. Endogenous redistributive policy affects wealth distribution and economic growth. Therefore, the relation between post-tax inequality and economic growth is different from that between pre-tax inequality and economic growth. Results show that there exists a negative correlation between pre-tax inequality and economic growth, whereas there exists an inverted-U relationship between post-tax inequality and economic growth in a voting equilibrium.     

Top marginal taxation and economic growth

The article explores the relationship between top marginal tax rates on personal income and economic growth. Using a data set of consistently measured top marginal tax rates for a panel of 18 OECD countries over the period 1965–2009, this article finds evidence in favour of a quadratic top tax–growth relationship. This represents the first reported evidence of a nonmonotonic significant relationship between top marginal income tax rates and economic growth. The point estimates of the regressions suggest that the marginal effect of higher top tax rates becomes negative above a growth-maximizing tax rate in the order of 60%. As top marginal tax rates observed after 1980 are below the estimated growth-maximizing level in most of the countries considered, a positive linear relationship between top marginal tax rates and GDP growth is found over the sub-period 1980–2009. Overall, results show that raising top marginal tax rates which are below their growth maximizing has the largest positive impact on growth when the related additional revenues are used to finance productive public expenditure, reduce budget deficits or reduce some other form of distortionary taxation.     

Capital depreciation allowances,redistributive taxation,and economic growth

Are capital depreciation allowances when coupled with capital income taxes good instruments for redistribution in the long run? In a simple two-agent-economy I find that accelerated depreciation is good for growth, but bad for redistribution. The opposite holds for capital income taxes. However, in a feedback Stackelberg equilibrium, where the government is the leader and the private sector the follower, the depreciation allowance is maximal in the long run, time-consistent optimum. This removes the accumulation distortion of capital income taxes. Furthermore, the latter, and so redistribution, is found to be generically nonzero in the time-consistent optimum, and depends on the social weight of transfers receivers, the pretax factor income distribution, the intertemporal elasticity of substitution and the time preference rate. Thus, accelerated depreciation allowances are an important indirect tool for redistribution. The tax scheme allows for a separation of “efficiency” and “equity” concerns for redistributive policies.     

Short-run and long-run effects of capital taxation on innovation and economic growth

In this study, we examine the effects of capital taxation on innovation and economic growth in an R&D-based growth model. We find that capital taxation has drastically different effects in the short run and in the long run. An increase in the capital income tax rate has both a consumption effect and a tax-shifting effect on the equilibrium growth rates of technology and output. In the short run, the consumption effect dominates the tax-shifting effect causing an initial negative effect of capital taxation on the equilibrium growth rates. However, in the long run, the tax-shifting effect becomes the dominant force yielding an overall positive effect of capital taxation on steady-state economic growth. These contrasting effects of capital taxation at different time horizons may provide a theoretical explanation for the mixed evidence in the empirical literature on capital taxation and economic growth.     

Capital income taxation,depreciation allowances and economic growth: A perfect-foresight general equilibrium model

Conclusions The results indicated in Table 1 show that incomplete depreciation allowances reinforce the distortions in the equilibrium growth path brought about by an ideal capital income tax. A reduction in the deductible share of economic depreciation, like an increase in the tax rate, raises the current level of consumption, but reduces the steady state levels of consumption and capital per efficiency unit of labour.The reason for these distortions is that the tax law is able to drive wedges both between the rate of time preference and the market rate of interest, and between the latter and the marginal productivity of capital. The first wedge is created through capital income taxation as such and its size is directly related to the tax rate. The second wedge is created by the incomplete deductibility of depreciation. Its size is directly related to the tax rate and inversely to the deductible share of depreciation. For the distortion in the growth path of the economy it is the sum of the two wedges that counts. Therefore it is plausible that incomplete depreciation allowances reinforce the effects of capital income taxation.Knowing the determinants of the two wedges one can easily derive the influence of a tax reform on the marginal productivity of capital, the market rate of interest and the rate of time preference (cf. Table 2). In the short run, the system of these three interest rates is anchored by the marginal productivity of capital, and hence any measure that widens a wedge is translated into a reduction in the rate or those rates below the wedge. In the long run the system is anchored by the rate of time preference and an increase in the width of a wedge is translated into an increase in those rates or that rate above this wedge.The paper was written in association with the Sonderforschungsbereich 5 (Staatliche Allokationspolitik im marktwirtschaftlichen System).     

Bargaining frictions, labor income taxation, and economic performance

This paper is an attempt to explain differences in economic performance between a subset of OECD countries. We classify countries in terms of their degree of rigidity in the labor market, and use a matching model with labor/leisure choice, bargaining frictions, and labor income taxation to capture these rigidity differences. Added flexibility improves economic performance in different ways depending on whether income taxation is high or low. Feeding income taxation rates estimated from the countries at hand, we find that the model is able to replicate the observed rigidity levels. The model is also shown to reproduce well cross-country differences in non-employment population ratios and the share of part-time jobs. In the absence of rigidity differences, taxation shows little promise to replicate cross-country differences, as it has insufficient quantitative effects on production and productivity. However, the interaction of rigidity and income taxation is crucial in explaining the empirical patterns of the non-employment rate and of the share of part-time jobs.     

财政支出、税收与经济增长

This paper assesses the effect of fiscal policy on economic growth in an AK model with endogenous labor supply. It is found that the structure of taxation and government expenditure could affect the long-run growth rate through their effect on households’ labor-leisure choice, saving-consuming choice and the proportion of government expenditure to GDP. Barro’s (1990) plausible result that the growth rate and the income tax rate have an inverted-U relationship does not always hold. In addition, based on the panel data of 31 provinces from 1997 to 2007, we investigate the link between components of government productive expenditure and economic growth. It is found that the productive expenditure does not always have a positive effect on the growth rate, and its effect exhibits regional differences. The reason is that there is an excess amount of the government productive expenditure in China or the efficiency of the government productive expenditure may be too low.     

Capital taxation, long-run growth, and bequests

It has been shown that higher capital taxes can have a growth-enhancing effect when combined with a revenue-compensating cut in wage taxes or with an expansion in productivity-increasing public services. The present paper demonstrates that these results critically hinge on the existence of a bequest motive. It is shown that a wage-tax cut is no longer growth-enhancing when bequests are operative. By way of contrast, increasing productive public services may well boost growth. The theoretical findings are illustrated by numerical simulations based on US data.     

Unemployment, growth and taxation in industrial countries

To the layman, the upward trend in European unemployment is related to the slowdown of economic growth. We argue that the layman's view is correct. The increase in European unemployment and the slowdown in economic growth are related, because they stem from a common cause: an excessively rapid growth in the cost of labour. In Europe, labour costs have gone up for many reasons, but one is particularly easy to identify: higher taxes on labour. If wages are set by strong and decentralized trade unions, an increase in labour taxes is shifted onto higher real wages. This has two effects. First, it reduces labour demand, and thus creates unemployment. Secondly, as firms substitute capital for labour, the marginal product of capital falls; over long periods of time, this in turn diminishes the incentive to invest and to grow. The data strongly support this view. According to our estimates, the observed rise of 14 percentage points in labour tax rates between 1965 and 1995 in the EU could account for a rise in EU unemployment of roughly 4 percentage points, a reduction of the investment share of output of about 3 percentage points, and a growth slowdown of about 0.4 percentage points a year.     

Relevance of corruption on the effect of public health expenditure and taxation on economic growth

We investigate whether corruption distorts the positive effect of public health expenditure and taxation on growth through panel data analysis of 75 developing countries for the period from 1995 to 2014. The findings indicate that, although both public health expenditure and taxation can increase economic growth, in countries with more corrupt governments this effect is reduced.     

Political economy of taxation,debt ceilings,and growth

This study presents voting on policies, including labor and capital income taxes and public debt, in an overlapping-generations model with physical and human capital accumulation, and analyzes the effects of a debt ceiling on a government's policy formation and its impact on growth and welfare. The results show that the debt ceiling induces the government to shift the tax burdens from the older to younger generations, but stimulates physical capital accumulation and may increase public education expenditure, resulting in a higher growth rate. Alternatively, the debt ceiling is measured from the viewpoint of a benevolent planner and lowering the debt ceiling (i.e., tightening fiscal discipline) makes it possible for the government to approach the planner's allocation in an aging society.     

Heterogeneous capital, economic growth, and economic development

This paper asks how much does physical capital contribute to economic growth. It postulates that capital is heterogeneous because of embodied progress, and it structures the inquiry to account for differences in economic development. Embedded in data that cover 120 nations over 41 years are 35 derived capital stock series, whose characteristics include average ages stratified by development state. Growth accountancy proceeds by regression analysis cast in a production function context and repeated for each capital type. Those results help to establish the growth contributions of labor quantity and quality and capital quantity and quality. They also bear on neoclassical convergence.     

Optimal taxation,the compensation principle and the measurement of changes in economic welfare

This paper explores the implications of optimal taxation for the measurement of changes in economic welfare. It shows that the measure implied by the compensation principle — the sum of the relevant compensating variations — is only accurate in the presence of optimal lump-sum taxation: an unsurprising conclusion, but a gloomy one given that such taxation is generally infeasible. However, all is not lost. The paper uses the linear income tax case to show that it is possible to derive weights that can be attached to the relevant compensating variations to provide accurate measures of changes in welfare in the presence of second-best taxation: weights that can be calculated from observable data.     

Consumption externality, efficiency and optimal taxation in one-sector growth model

In an economy with consumption externalities, existing studies find that a competitive equilibrium is efficient in the long run and remains efficient in transitions if preferences are homothetic. This paper revisits the efficiency issue in an otherwise standard one-sector growth model where consumption externalities affect a utility via their effects on the time preference. We find that even if preferences are homothetic, the externality changes the marginal rate of substitution between now and future and leads to a disparity in the intertemporal elasticity of substitution between the centrally planned economy and a decentralized economy. As a result, a competitive equilibrium is inefficient in transition dynamics. We characterize an optimal tax/subsidy structure that enables the allocation in a decentralized economy to replicate the social optimum.     

Knowledge, economic structure, and growth

This paper proposes a two-sector growth model to examine the dynamic interactional relationships between capital and knowledge. The economy consists of two production sectors—industry and service—and one knowledge production sector—research institutions and universities. The university is financially supported by the government by taxing the service and industrial sectors. We provide a compact framework for analyzing the interactions of the three sectors with a given population and a fixed preference structure of the population. The model also determines the dynamics of the price of the industrial good, the wage rate, and the interest rate. First, we guarantee the existence of equilibria and provide the stability conditions. Then, we examine the effects of changes in the government's research policy and some other parameters upon the system.     

Infrastructure, specialization, and economic growth

We introduce infrastructure as a cost-reducing technology in Romer's (1987) model of endogenous growth. We show that infrastructure can promote specialization and long-run growth, even though its effect on the latter is non-monotonic, reflecting its resource costs. We provide evidence using data from the U.S. Census of Manufactures that suggests that the degree of specialization is positively correlated with core infrastructure, as predicted by the model. We also provide evidence from cross-country regressions, using physical measures of infrastructure provision, that shows a robust non-monotonic relationship between infrastructure and growth. JEL Classification: 041,050
Les auteurs introduisent l'infrastructure en tant que technologie réduisant les coûts dans un modèle de croissance endogène à la Romer (1987). On montre que l'infrastructure peut promouvoir la spécialisation et la croissance en longue péride, même si ses effets sur la croissance ne sont pas monotones et reflètent ses coûts en ressource. On montre, en utilisant les données du recensement des manufactures des Etats Unis, que le degré de spécialisation est relié positivement à l'infrastructure de base, comme le suggère le modèle. On montre aussi à l'aide de régressions transversales, utilisant des mesures physiques de l'infrastructure, qu'il existe une relation non monotone mais robuste entre infrastructure et croissance.