A number of recent papers have investigated the growth effects of tax refor
ms in the context of neoclassical growth models with human capital. Growth
effects were found to be large, but highly sensitive to parameter choices.
This paper shows that growth effects are smaller and much less sensitive in
models that generate realistic life-cycle behavior, which requires that ho
useholds are finitely lived (but generations may be altruistically linked)
and face diminishing point in time returns in human capital accumulation. R
easonable upper bounds for growth effects in such models are less than one
third of some values reported in the literature. (C) 1999 Elsevier Science
B.V. All rights reserved. JEL classification: J24; O41.