TAX STRUCTURE AND GROWTH IN A MODEL WITH HUMAN-CAPITAL

The effect of the tax structure on the long-run growth rate of income and consumption is analyzed, where tax structure refers to the mix of taxes on physical and human capital which satisfy an exogenously given government budget constraint. The factor used intensively in the consumption good sector, relative to the capital goods sector as a whole, is taxed more highly in a growth-maximizing tax structure. An endogenous labor supply, the tax treatment of depreciation and the effect of replacing the income tax with a consumption tax are all considered.