Consumption Taxation and Endogenous Growth in a Model with New Generations

Petrucci, Alberto (2001) Consumption Taxation and Endogenous Growth in a Model with New Generations. [Working Paper]. p. 22. Fondazione Eni Enrico Mattei Working Paper (No. 79.2001).

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This article studies the implications of consumption taxation on capital accumulation in a one-sector endogenous growth model with finite horizons. A tax on consumption, when tax revenues are lump-sum rebated to consumers, redistributes income between living generations and future, still unborn, generations, and therefore depresses aggregate consumption and raises saving, stimulating capital accumulation and economic growth. If however the resources from taxation are used for financing unproductive public spending, the effect of the consumption tax on the endogenous growth rate disappears as no intergenerational redistribution of income occurs. Finally, a consumption tax hike accompanied by a compensatory reduction of public debt increases long-run economic growth and reduces the consumption-output ratio. Our results on consumption taxation differ substantially from those obtained within the endogenous growth literature.

Item Type: Report / Paper (Working Paper)
Research documents and activity classification: Working Papers > Refereed Working Papers / of international relevance
Divisions: Department of Business and Management
Additional Information: The definitive version of the paper has been published in "International Tax and Public Finance", Vol. 9(5), Pages 553-566, 2002.
Uncontrolled Keywords: Consumption tax, endogenous growth, overlapping generations
MIUR Scientific Area: Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited by: Maria Teresa Nisticò
Date Deposited: 13 Dec 2010 16:07
Last Modified: 22 Apr 2015 00:13


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