Growth Effects of Consumption and Labour Income Taxation in an Overlapping-Generations Life-Cycle Model
30 Pages Posted: 19 Nov 2009
Date Written: October 15, 2009
Abstract
We study labour-income and consumption taxation in an overlapping-generations model featuring endogenous growth due to inter-firm investment externalities. Consumption, saving, and labour supply display life-cycle features because mortality and labour productivity are age dependent and because annuity markets may be imperfect. The government’s method of revenue recycling critically affects the growth consequences of taxation. Purely consumptive government spending has a negative impact on growth. Redistribution of tax revenue from dissavers to savers may lead to an increase in growth due to beneficial intergenerational transfer effects.
Keywords: annuity markets, retirement, endogenous growth, overlapping generations, demography, taxation, intergenerational transfers
JEL Classification: D52, D91, E1, H2, J2, O41
Suggested Citation: Suggested Citation
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