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- Title
Does the Progressivity of Income Taxes Matter for Human Capital and Growth?
- Authors
Caucutt, Elizabeth M.; İmrohoroğlu, Selahattin; Kumar, Krishnar B.
- Abstract
We develop a model with heterogeneity in skills to study the effect of tax progressivity on economic growth. The probability of becoming skilled depends positively on expenses on teacher time. We consider growth resulting from an externality due to skilled workers and from their employment in research and development. We show changes in the progressivity of taxes can have growth effects even when changes in flat rate taxes have none. The response is stronger with externality-driven growth. Progressive taxation, often suggested to reduce inequality, can increase the long-run skill premium and decrease the upward mobility of the poor.
- Subjects
INCOME tax; ECONOMICS; RESEARCH; TAXATION; ECONOMIC development; EXTERNALITIES; FIXED interest rates; FLAT rates
- Publication
Journal of Public Economic Theory, 2006, Vol 8, Issue 1, p95
- ISSN
1097-3923
- Publication type
Article
- DOI
10.1111/j.1467-9779.2006.00254.x