The Growth Rate Effects of Tax Reform

Paul Pecorino ()

Oxford Economic Papers, 1994, vol. 46, issue 3, 492-501

Abstract: A model of growth through the accumulation of human capital is set out and tax reforms simulated using the U.S. economy in 1985 as a basis for the benchmark parametrization. The growth rate effects of tax reform are found to be on the order of one percentage point of growth per capita. This gain in growth is associated with replacing the existing income tax structure with a consumption tax. Replacing the tax on physical capital with higher taxes on labor is found to be mildly growth reducing. The results are contrasted with those of R. E. Lucas (1990). Copyright 1994 by Royal Economic Society.

Date: 1994
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