Growth and welfare maximization in models of public finance and endogenous growth


Misch, Florian ; Gemmell, Norman ; Kneller, Richard


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URL: http://ub-madoc.bib.uni-mannheim.de/3191
URN: urn:nbn:de:bsz:180-madoc-31910
Document Type: Working paper
Year of publication: 2011
The title of a journal, publication series: None
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: O40 H50 H21 E62 ,
Subject headings (SWD): Finanzwirtschaft , Öffentliche Ausgaben , Steuerpolitik , Wirtschaftswachstum , Wohlfahrtseffekt , Theorie
Keywords (English): Economic growth , productive public spending , optimal fiscal policy
Abstract: This paper evaluates the trade-off between growth and welfare maximization from two perspectives. Firstly, it synthesizes and extends endogenous growth models with public finance to compare growth and welfare maximizing tax rates. Secondly, it examines the distinct model outcomes in terms of their growth rates and welfare levels. This comparison highlights the range of trade-offs: the growth maximizing tax rate can be above, below, or equal to the welfare maximizing equivalent. We find however that even relatively large differences in growth and welfare maximizing tax rates translate into relatively small differences in growth rates, and, in some cases, welfare levels.
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