On the Taxation of Human and Physical Capital in Models of Endogenous Growth

CEPR Discussion Paper Series No. 1477

Posted: 11 Mar 1997

See all articles by Nouriel Roubini

Nouriel Roubini

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

Gian Maria Milesi-Ferretti

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

Date Written: October 1996

Abstract

This paper studies the effects of factor income taxation and of subsidies to human capital accumulation in models of endogenous growth. It examines in particular how these effects depend on the specification of the leisure activity and on the technology and tax treatment of the sector producing human capital. It shows that the negative effects of factor income taxes on economic growth are stronger when the human capital sector is a market good. Under these circumstances, a subsidy to human capital accumulation can offset the direct growth effects of labor taxation, making it akin to a consumption tax. The paper then derives the normative implications of the analysis for the optimal taxation of factor incomes, showing that all tax and subsidy "wedges" should be eliminated in the long run.

JEL Classification: E62, O41, F41

Suggested Citation

Roubini, Nouriel and Milesi-Ferretti, Gian Maria, On the Taxation of Human and Physical Capital in Models of Endogenous Growth (October 1996). CEPR Discussion Paper Series No. 1477. Available at SSRN: https://ssrn.com/abstract=4724

Nouriel Roubini (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Gian Maria Milesi-Ferretti

International Monetary Fund (IMF) ( email )

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Centre for Economic Policy Research (CEPR)

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