THE GROWTH-RATE EFFECTS OF TAX-REFORM

A model of growth through the accumulation of human capital is set out and tax reforms simulated using the US economy in 1985 as a basis for the benchmark parameterization. The growth rate effects of tax reform are found to be on the order of one percentage point of growth per ca pita. This gain in growth is associated with replacing the existing in come tax structure with a consumption tax. Replacing the tax on physic al capital with higher taxes on labor is found to be mildly growth red ucing. The results are contrasted with those of Lucas (1990).