Growth Effects of Income and Consumption Taxes

Posted: 28 Jun 1998

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)

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. It is shown that the effects of taxation on growth depend crucially on whether the sector producing human capital is a market sector, on the technology for human capital accumulation and on the specification of the leisure activity. In general, the taxation of factor incomes (human and physical capital) is growth-reducing, while the effects of a consumption tax depend on the specification of leisure. The paper also derives implications for the growth-maximizing choice of tax instruments.

JEL Classification: E62, H21, H23, O23

Suggested Citation

Milesi-Ferretti, Gian Maria and Roubini, Nouriel, Growth Effects of Income and Consumption Taxes. Journal of Money, Credit, and Banking, Vol. 30, No. 4, November 1998. Available at SSRN: https://ssrn.com/abstract=93928

Gian Maria Milesi-Ferretti (Contact Author)

International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Nouriel Roubini

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

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National Bureau of Economic Research (NBER)

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