NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Growth Effects of Flat-Rate Taxes

Nancy L. Stokey, Sergio Rebelo

NBER Working Paper No. 4426
Issued in August 1993
NBER Program(s):   EFG

Recent estimates of the potential growth effects of tax reform vary widely, ranging from zero (Lucas 1990) to eight percentage points (Jones, Manuelli, and Rossi 1993). Using an endogenous growth model, we assess which model features and parameter values are important for determining the quantitative impact of tax reform. We find that the critical parameters are factor shares, depreciation rates, the elasticity of intertemporal substitution, and the elasticity of labor supply. The elasticities of substitution in production, on the other hand, are relatively unimportant. The quantitative estimates in several recent papers are compared with each other and with some of the evidence from U.S. experience.

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Document Object Identifier (DOI): 10.3386/w4426

Published: Journal of Political Economy, vol 103, no 3, pp 519-550, June 1995. citation courtesy of

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