Tax Policy and Human Capital Formation with Public Investment in Education

Simone Valente

Macroeconomics from University Library of Munich, Germany

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.

Keywords: Endogenous growth; Human capital; Overlapping generations; Tax policy; Public investment. (search for similar items in EconPapers)
JEL-codes: E62 O11 O41 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-07-07
New Economics Papers: this item is included in nep-dge, nep-edu, nep-mac and nep-pub
Note: Type of Document - pdf; pages: 30
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Tax Policy and Human Capital Formation with Public Investment in Education (2005)
Working Paper: Tax policy and human capital formation with public investment in education (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0507002

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