TAX RATES AND TAX REVENUES IN A MODEL OF GROWTH THROUGH HUMAN-CAPITALACCUMULATION

The relationship between tax rates and the present value of tax collec tions is analyzed in an endogenous growth setting in which growth is d riven by the accumulation of human capital. In such a model, income ta xation may reduce the size of the tax base in current and future perio ds through both labor supply and growth rate effects. Under the benchm ark parameterization of the model, the growth-reducing effects of taxa tion are found to have a moderate, but significant effect in lowering the revenue-maximizing rate of taxation relative to a static model.