Growth effect of taxes in an endogenous growth model: to what extent do taxes affect economic growth?
✍ Scribed by Se-Jik Kim
- Publisher
- Elsevier Science
- Year
- 1998
- Tongue
- English
- Weight
- 215 KB
- Volume
- 23
- Category
- Article
- ISSN
- 0165-1889
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✦ Synopsis
This paper presents an endogenous growth model comprising of financial, human and physical capital and incorporating major features of a general tax system. Technology and preference parameter values in the model are chosen to fit the actual growth experiences of the United States and a rapidly growing East Asian NIC. Using the calibrated model, I assess the role of differences in taxes and other variables in explaining the difference in growth rates. The main findings are: (i) the difference in tax systems across countries explains a significant proportion (around 30%) of the difference in growth rates; (ii) the difference in preferences explains at most 4%; and (iii) differences in labor income tax, debt-equity ratio and inflation can be important in explaining the growth difference. Further, I evaluate the contribution of the monetary factor to the growth rate gap, and the growth effect of US tax reforms, e.g., revenue-neutral changes in relative tax structure.