Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis

42 Pages Posted: 3 Sep 2000 Last revised: 24 Sep 2010

See all articles by Gian Maria Milesi-Ferretti

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Nouriel Roubini

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: October 1995

Abstract

The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capital. The different channels through which these taxes affect economic growth are discussed, and it is shown that in general the taxation of factor incomes (human and physical capital) is growth-reducing. The effects of consumption taxation on growth depend crucially on the elasticity of labor supply, and therefore on the specification of the leisure activity. The paper also derives implications for the optimal intertemporal choice of tax instruments.

Suggested Citation

Milesi-Ferretti, Gian Maria and Roubini, Nouriel, Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis (October 1995). NBER Working Paper No. w5317. Available at SSRN: https://ssrn.com/abstract=225381

Gian Maria Milesi-Ferretti (Contact Author)

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Nouriel Roubini

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