The effect of the tax structure on the long-run growth rate of income
and consumption is analyzed, where tax structure refers to the mix of
taxes on physical and human capital which satisfy an exogenously given
government budget constraint. The factor used intensively in the cons
umption good sector, relative to the capital goods sector as a whole,
is taxed more highly in a growth-maximizing tax structure. An endogeno
us labor supply, the tax treatment of depreciation and the effect of r
eplacing the income tax with a consumption tax are all considered.