Nonlinear Tax Structures and Endogenous Growth

Abstract

The growth implications of a nonlinear tax structure are investigated. The interest here is on the distortionary not the redistributive effects of taxation on economic growth. The study finds two results. First, the inclusion of a nonlinear tax structure into an Ak growth model introduces the convergence behavior of the neoclassical growth model while retaining the steady-state growth properties of the Ak model. Second, a tax structure that is more progressive through time will lower the transitional growth rate and raise the speed of convergence. Therefore, it is suggested that the tax structure may be another source of observed differences in per capita growth rates. Copyright 2001 by Blackwell Publishers Ltd and The Victoria University of Manchester