Open AccessOptimal Growth Taxation
Author(s) -
Marcus Davidsson
Publication year - 2012
Publication title -
research in world economy
Language(s) - English
Resource type - Journals
eISSN - 1923-399X
pISSN - 1923-3981
DOI - 10.5430/rwe.v3n1p35
Subject(s) - economics , tax revenue , optimal tax , government (linguistics) , revenue , public economics , simple (philosophy) , perspective (graphical) , public spending , government revenue , microeconomics , finance , politics , linguistics , philosophy , epistemology , artificial intelligence , computer science , political science , law
Government usually tends to have two options. They can either pursue a tax revenue maximizing strategy or a growth maximizing strategy. The two approached do not necessarily go hand in hand. This paper derives and empirically estimates a simple laissez faire optimal taxation model from the perspective of economic growth. The finding is that governments tend to systematically over tax the economy which leads to suboptimal allocations. Politicians tend to prefer high taxation over a cut in public spending i.e. a reduction in public sector jobs.