Are Nash Tax Rates too Low or Too High? The Role of Endogenous Growth in Models with Public Goods

George Economides and Apostolis Philippopoulos ()

Review of Economic Dynamics, 2003, vol. 6, issue 1, 37-53

Abstract: We reconsider the conventional wisdom that, in the presence of public goods, Nash tax rates are inefficiently low and decrease with the size of population. We use a general equilibrium dynamic model of a world economy, in which world-wide environmental quality has public good features. We show that the type of policy externality from one country to another (and hence whether we under-tax, or over-tax, in a Nash equilibrium relative to a cooperative one) can be reversed, when we introduce dynamics. Specifically, the policy externality changes from positive (which is the static, standard case) to negative, once the same model allows for long-term endogenous growth. This happens because in a growing economy, long-run capital tax bases are elastic so that a higher tax rate leads to lower economic growth, smaller tax bases, lower tax revenues, lower clean-up policy in each country, and this eventually generates a negative external effect upon other countries. Then, negative policy externalities imply that Nash tax rates are inefficiently high and increase with the size of population (Copyright: Elsevier)

Keywords: Public goods; externalities; endogenous growth; environment (search for similar items in EconPapers)
JEL-codes: H23 H4 O41 (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://dx.doi.org/10.1016/S1094-2025(02)00006-6 Full text (application/pdf)
Access to full texts is restricted to ScienceDirect subscribers and ScienceDirect institutional members. See http://www.sciencedirect.com/ for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:v:6:y:2003:i:1:p:37-53

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/S1094-2025(02)00006-6

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().