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on Public Finance |
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Issue of 2005‒07‒11
two papers chosen by |
| By: | Simone Valente (Institute of Economic Research WIF , Swiss Federal Institute of Technology Zurich ETH) |
| Abstract: | This paper studies the effects of distortionary taxes and public investment in an endogenous growth OLG model with knowledge transmission. Fiscal policy affects growth in two respects: First, work time reacts to variations of prospective tax rates and modifies knowledge formation; second, public spending enhances labour efficiency 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 effects: 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. |
| JEL: | E62 O41 O11 |
| Date: | 2005–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0507002&r=pub |
| By: | José M. Labeaga, Xisco Oliver; Xisco Oliver; Amedeo Spadaro |
| Abstract: | In this paper, we demonstrate the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. The subject of our analysis is the impact of recent Spanish Income Tax reforms on efficiency and household and social welfare. We also analyze the likely effects of some basic income flat tax and vital minimum flat tax schemes. The analysis is carried out using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman 1981, 1985a, and 1985b), we estimate the direct utility function using the methodology proposed by Van Soest (1995). Our data come from a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We show that in the Spanish case, the redistribution policies considered have only little impact on the efficiency of the economy. On the contrary, they strongly affect social welfare. |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2005-14&r=pub |