Optimal tax structure and public expenditure composition in a simple model of endogenous growth

Lifeng Zhang (), Yucong Ru and Jingkui Li

Economic Modelling, 2016, vol. 59, issue C, 352-360

Abstract: In this paper, using an endogenous growth model where the structural relationship between public expenditures and taxes is considered, we investigate how the optimal tax structure is determined by public spending structure. Public spending provides two public goods, public service and public capital that impact production, the former as a flow, the latter as a stock, and these can be financed by flat rate taxes on consumption and income. Our theoretical model suggests that the optimal tax structure is equivalent to the public spending composition. Our numerical example provides a further proof for the theoretical propositions.

Keywords: Public spending composition; Tax structure; Growth (search for similar items in EconPapers)
JEL-codes: E62 H29 H54 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:59:y:2016:i:c:p:352-360

DOI: 10.1016/j.econmod.2016.08.005

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