On taxation in a two-sector endogenous growth model with endogenous labor supply
Journal of Economic Dynamics and Control , Volume 30 - Issue 4 p. 655- 685
This paper studies the effects of taxation on long-run growth in a two-sector endogenous growth model with (i) physical capital as an input in the education sector and (ii) leisure as an additional argument in the utility function. Income taxation - the same rate applies for capital and labor income - reduces the growth rate. The same is true if only labor income is taxed. However, if only capital income is taxed, the positive effect of an increase in total non-leisure time may dominate the direct negative effect, implying that capital taxation increases the long-run growth rate.
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|Journal of Economic Dynamics and Control|
|Organisation||Erasmus School of Economics|
de Hek, P.A. (2006). On taxation in a two-sector endogenous growth model with endogenous labor supply. Journal of Economic Dynamics and Control, 30(4), 655–685. doi:10.1016/j.jedc.2005.02.006