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LONG‐RUN GROWTH AND WELFARE EFFECTS OF TAX REFORM
Author(s) -
CHANG WENYA,
LEE KUOHAO,
CHANG JUINJEN
Publication year - 2011
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2011.00561.x
Subject(s) - economics , endogenous growth theory , romer , welfare , tax reform , fertility , consumption tax , indirect tax , consumption (sociology) , growth model , monetary economics , labour economics , macroeconomics , public economics , market economy , human capital , population , social science , demography , cartography , sociology , geography
This paper introduces an endogenously‐determined fertility rate into a Romer‐type endogenous growth model and, accordingly, investigates the effects on fertility, economic growth and social welfare of a revenue‐neutral tax reform that involves switching from an income tax to a consumption tax. We show that, in a departure from the existing literature, tax reform could be harmful, rather than favourable, to both growth and welfare, due to an endogenous fertility rate. We also conduct a simple numerical analysis to investigate under what conditions the negative effect on growth and welfare occurs.