Growth, Death, and Taxes

Lutz Hendricks ()

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Recent theories of endogenous growth suggest that changes in tax rates may permanently affect growth. However, attempts to quantify these growth effects have reached very different conclusions in spite of a common theoretical framework: the neoclassical growth model with human capital accumulation by infinitely lived households. This paper shows that a model that explicitly specifies human capital accumulation over the life-cycle provides sharper answers. In such a model, a plausible range for the growth effects of eliminating taxes in the United States is between 0.5 and 1.3 percentage points compared with 0 to 4 percentage points in the infinite horizon model. The much wider range found in the literature is due to two assumptions which are commonly viewed as innocuous simplifications but contrast sharply with traditional human capital theory: that households are infinitely lived and face constant point-in-time returns in human capital accumulation. The widely held view that long, finite horizons are closely approximated by infinite horizons is generally invalid. Abstracting from finite horizons leads to a systematic overstatement of the growth effects of taxes.

Date: 2001-01-01
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published in Review of Economic Dynamics 2001, vol. 4, pp. 26-57

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Growth, Death, and Taxes (2001)
Working Paper: Growth, Death, and Taxes
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:11930

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer ().