Growth and welfare: Distorting versus non-distorting taxes

Gustavo Marrero and Alfonso Novales

Documentos de Trabajo del ICAE from Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico

Abstract: In an infinitely-lived framework, taxing capital income may be growth and welfare enhancing when it allows for correcting distorting externalities in the competitive equilibrium allocation. This is the case when public capital is subject to congestion by private capital or total income [Fisher and Turnovsky (1998)] or when government expenditure exerts an external e.ect on physical capital [Corsetti and Roubini (1996)]. However, none of these features appear in simple one-sector endogenous growth models with public capital. Alternatively, we consider certain realistic fiscal policy constraints in a simple one-sector growth model with productive and unproductive public expenditures, to show that raising revenues through factor income taxes may be preferred to using lump-sum taxes.

Keywords: Endogenous growth; distorting taxes; public investment. (search for similar items in EconPapers)
JEL-codes: E0 E6 O4 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2001
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Related works:
Journal Article: Growth and welfare: Distorting versus non-distorting taxes (2005)
Working Paper: Growth and Welfare: Distorting versus Non-Distorting Taxes (2003)
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