On the Taxation of Human and Physical Capital in Models of Endogenous Growth

Gian Maria Milesi-Ferretti () and Nouriel Roubini ()

No 1477, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies the effects of factor income taxation and of subsidies to human capital accumulation in models of endogenous growth. It examines in particular how these effects depend on the specification of the leisure activity and on the technology and tax treatment of the sector producing human capital. It shows that the negative effects of factor income taxes on economic growth are stronger when the human capital sector is a market good. Under these circumstances, a subsidy to human capital accumulation can offset the direct growth effects of labour taxation, making it akin to a consumption tax. The paper then derives the normative implications of the analysis for the optimal taxation of factor incomes, showing that all tax and subsidy ‘wedges’ should be eliminated in the long run.

Keywords: Endogenous Growth; Human Capital; Leisure; Taxation (search for similar items in EconPapers)
JEL-codes: E62 F41 O41 (search for similar items in EconPapers)
Date: 1996-10
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Citations: View citations in EconPapers (6)

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Journal Article: On the taxation of human and physical capital in models of endogenous growth (1998)
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