Fiscal policy in an endogenous growth model with human capital accumulation

In this paper we present an endogenous growth model with physical and human capital accumulation and study the effects of labor and capital income taxation on the transitional dynamics to the balanced path. We show that parameters on preferences, technologies and depreciation rates, as well as fiscal policy parameters, ale relevant to determine qualitatively the dynamic behavior of the economy. We also offer a measure of the inefficiency derived from the taxation of capital earnings. Finally, we consider the taxation welfare cost in two non-trivial generalizations of our basic model which include the case of physical capital in the educational sector and leisure as an additional argument in the utility function. (C) 1998 Elsevier Science B.V. All rights reserved.