TY  - JOUR
AU  - Davies,James
AU  - Whalley,John
TI  - Taxes and Capital Formation:  How Important is Human Capital?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2899
PY  - 1989
Y2  - March 1989
UR  - http://www.nber.org/papers/w2899
L1  - http://www.nber.org/papers/w2899.pdf
N1  - Author contact info:
James B. Davies
The University of Western Ontario
Department of Economics
Social Science Centre, Room 4071
London, Ontario, Canada, N6A 5C2
E-Mail: jdavies@uwo.ca

John Whalley
Department of Economics
Social Science Centre
University of Western Ontario
London, ON N6A 5C2
CANADA
Tel: 519/661-3509
Fax: 519/661-3666
E-Mail: jwhalley@uwo.ca
M1  - published as James Davies, John Whalley. "Taxes and Capital Formation: How Important is Human Capital?," in B. Douglas Bernheim and John B. Shoven, editors, "National Saving and Economic Performance" University of Chicago Press (1991)

AB  - This paper explores how explicit incorporation of human capital affects dynamic general equilibrium analysis of the effects of taxes on capital formation and welfare in a life-cycle growth model. In contrast to the results of partial equilibrium analysis, we find that estimates of the full dynamic welfare costs of capital income taxes are little affected by incorporating human capital. While the short-run impact effects of replacing income taxes with wage or consumption taxes are significantly affected by endogenizing human capital, these effects are short-lived. In the long-run the rate of return on non-human capital falls to approximately its initial net of tax level, and steady-state human capital investment plans are therefore little affected by the tax changes. Although incorporating human capital thus does not greatly alter results in our numerical simulations, a wide range of extensions and modifications of the model are discussed which could in principle modify this conclusion.
ER  -