Growth Effects of Flat-Rate Taxes

61 Pages Posted: 10 Jan 2007 Last revised: 15 Aug 2010

See all articles by Nancy L. Stokey

Nancy L. Stokey

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 1993

Abstract

Recent estimates of the potential growth effects of tax reform vary widely, ranging from zero (Lucas 1990) to eight percentage points (Jones, Manuelli, and Rossi 1993). Using an endogenous growth model, we assess which model features and parameter values are important for determining the quantitative impact of tax reform. We find that the critical parameters are factor shares, depreciation rates, the elasticity of intertemporal substitution, and the elasticity of labor supply. The elasticities of substitution in production, on the other hand, are relatively unimportant. The quantitative estimates in several recent papers are compared with each other and with some of the evidence from U.S. experience.

Suggested Citation

Stokey, Nancy L. and Tavares Rebelo, Sergio, Growth Effects of Flat-Rate Taxes (August 1993). NBER Working Paper No. w4426. Available at SSRN: https://ssrn.com/abstract=480236

Nancy L. Stokey (Contact Author)

University of Chicago - Department of Economics ( email )

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Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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847-467-2329 (Phone)
847-491-5719 (Fax)

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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