Tax policy and human capital formation with public investment in education

Valente, Simone (2005) Tax policy and human capital formation with public investment in education. Journal of Economics, 86 (3). pp. 229-258. ISSN 0931-8658

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Abstract

This paper studies the effects of distortionary taxes and public investment in an endogenous growth OLG model with knowledge transmission. Fiscal policy affects growth in two respects: first, work time reacts to variations of prospective tax rates and modifies knowledge formation; second, public spending enhances labour efficiency but also stimulates physical capital through increased savings. It is shown that Ramsey-optimal policies reduce savings due to high tax rates on young generations, and are not necessarily growth-improving with respect to a pure private system. Non-Ramsey policies that shift the burden on adults are always growth-improving due to crowding-in effects: the welfare of all generations is unambiguously higher with respect to a private system, and there generally exists a continuum of non-optimal tax rates under which long-run growth and welfare are higher than with the Ramsey-optimal policy.

Item Type:	Article
Uncontrolled Keywords:	endogenous growth,human capital,overlapping generations,tax policy,public investment
Faculty \ School:	Faculty of Social Sciences > School of Economics
UEA Research Groups:	Faculty of Social Sciences > Research Groups > Environment, Resources and Conflict Faculty of Social Sciences > Research Groups > Economic Theory
Depositing User:	Pure Connector
Date Deposited:	24 Sep 2016 00:57
Last Modified:	07 Mar 2024 02:04
URI:	https://ueaeprints.uea.ac.uk/id/eprint/60319
DOI:	10.1007/s00712-005-0146-6

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