Flat-Rate Taxes, Government Spending on Education, and Growth

Gerhard Glomm, B. Ravikumar

Research output: Contribution to journalArticle

49 Scopus citations

Abstract

We address three questions in this paper. First, what is the impact on growth of changes in flat-rate taxes when government spending on education affects private decisions to accumulate human capital? Second, are the growth effects negligible when we simultaneously change taxes and government spending on education? Third, what are the implications for time allocated to learning when we change taxes and spending? For an economy calibrated to the U.S. data along the lines of Lucas (R. E. Lucas, Jr.,Oxford Econ. Pap.42(1990), 293-316), we find that the growth effects of changes in capital income tax rates are negligible despite the distortionary government spending; simultaneous changes in taxes and spending on education have modest effects on growth; and the learning time is unresponsive to changes in taxes. While the first two results are consistent with the U.S. data, the third one is not: during the 20th century, the learning time has increased dramatically along with taxes.Journal of Economic LiteratureClassification Numbers: O10, E62.

Original languageEnglish (US)
Pages (from-to)306-325
Number of pages20
JournalReview of Economic Dynamics
Volume1
Issue number1
DOIs
StatePublished - Jan 1 1998

Keywords

  • Taxes; government spending; growth; education

ASJC Scopus subject areas

  • Economics and Econometrics

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