TAXES ON CAPITAL ACCUMULATION AND ECONOMIC-GROWTH

This paper investigates the effect of taxation on capital accumulation using an endogenous growth model with an altruistic bequest motive. W hen bequests are not operative, an increased tax on human capital may not reduce the rate of economic growth, while a tax increase on physic al capital will reduce the growth rate. If bequests are operative, a t ax on life-cycle capital will not affect the growth rate, while a tau increase on transfer capital will reduce the growth rate. This paper a lso examines how to attain the first best solution given its operative assumptions.