Growth and Welfare Maximization in Models of Public Finance and Endogenous Growth

41 Pages Posted: 15 Jul 2011

See all articles by Florian Misch

Florian Misch

ZEW – Leibniz Centre for European Economic Research

Norman Gemmell

Victoria University of Wellington - Victoria Business School

Richard Kneller

University of Nottingham

Date Written: 2011

Abstract

This paper evaluates the trade-off between growth and welfare maximization from two perspectives. Firstly, it synthesizes and ex- tends endogenous growth models with public finance to compare growth and welfare maximizing tax rates. Secondly, it examines the distinct model outcomes in terms of their growth rates and welfare levels. This comparison highlights the range of trade-offs: the growth maximizing tax rate can be above, below, or equal to the welfare maximizing equivalent. We find however that even relatively large differences in growth and welfare maximizing tax rates translate into relatively small differences in growth rates, and, in some cases, welfare levels.

Keywords: Economic Growth, Productive Public Spending, Optimal Fiscal Policy

JEL Classification: E62, H21, H50, O40

Suggested Citation

Misch, Florian and Gemmell, Norman and Kneller, Richard, Growth and Welfare Maximization in Models of Public Finance and Endogenous Growth (2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-041. Available at SSRN: https://ssrn.com/abstract=1886417 or http://dx.doi.org/10.2139/ssrn.1886417

Florian Misch (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Norman Gemmell

Victoria University of Wellington - Victoria Business School ( email )

PO Box 600
Wellington 6140
New Zealand

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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