THE GROWTH TAX IN THE UNITED-STATES

By providing public goods, including law and order, national defense, and income redistribution that expands the gains from exchange (the sc ope and membership of the constitutional agreement), government expend itures act as a positive externality on the growth rate. Beyond that l evel, taxes act as a negative externality. In this paper a simple mode l is formulated and the optimal (growth-maximizing) tax rate found. Em pirical estimation finds it to be in the range of 21.5-22.9 percent. T he effect of taxation beyond this level is a cumulative loss of about $30 trillion (1972 dollars) in GNP over the period 1949-89.