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GROWTH EFFECTS OF CONSUMPTION AND LABOR-INCOME TAXATION IN AN OVERLAPPING-GENERATIONS LIFE-CYCLE MODEL

Published online by Cambridge University Press:  04 October 2010

Ben J. Heijdra  and
Jochen O. Mierau
Ben J. Heijdra
Affiliation:
University of Groningen, IHS-Vienna, Netspar and CESifo
Jochen O. Mierau*
Affiliation:
University of Groningen and Netspar
*
Address correspondence to: Jochen O. Mierau, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV Groningen, The Netherlands; e-mail: j.o.mierau@rug.nl.
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Abstract

We study labor-income and consumption taxation in an overlapping-generations model featuring endogenous growth due to interfirm investment externalities. Consumption, saving, and labor supply display life-cycle features because mortality and labor productivity are age-dependent and because annuity markets may be imperfect. The government's method of revenue recycling critically affects the growth consequences of taxation. Purely consumptive government spending has a negative impact on growth. Redistribution of tax revenue from dissavers to savers may lead to an increase in growth due to beneficial intergenerational transfer effects.

Keywords

Annuity MarketsRetirementEndogenous GrowthOverlapping GenerationsDemographyTaxationIntergenerational Transfers
Type
Articles
Information
Macroeconomic Dynamics , Volume 14 , Supplement S2: Public Policy, Externalities, and Economic Growth , November 2010 , pp. 151 - 175
Copyright
Copyright © Cambridge University Press 2010

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