Tax policy and human capital formation with public investment in education

Simone Valente

No 05/41, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper studies the e¤ects of distortionary taxes and public in- vestment in an endogenous growth OLG model with knowledge trans- mission. Fiscal policy a¤ects growth in two respects: .rst, work time reacts to variations of prospective tax rates and modi.es knowledge formation; second, public spending enhances labour e¢ ciency 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 e¤ects: 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: 29 pages
Date: 2005-06
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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