No abstract

This paper develops a quantitative theoretical model for the optimal provision of public capital. We show that the ratio of public to private capital in the U.S. economy from 1925 to 1992 evolves in a manner that is generally consistent with an optimal transition path derived from the model. The model is also used to quantify the conditions under which an increase in the stock of public capital is desirable and to investigate the effects of hypothetical nonoptimal fiscal policies on productivity growth.

This paper investigates the impact of tax policy on foreign direct investment flows between the US and other countries using a panel data empirical approach. Using panel data is an attractive alternative to using single time series data because it provides greater statistical power and offers greater flexibility in terms of explanatory variables. This study finds many significant factors influencing the transfer of funds component of foreign direct investment. Most noteworthy is that, in addition to host and home country corporate tax rates having a significant effect on investment flows, the host and home country income tax rates are also significant.

We compute the growth effects of adopting a revenue‐neutral flat tax for both a human capital–based endogenous growth model and a standard neoclassical growth model. Long‐run growth effects are decomposed into the parts attributable to the flattening of the marginal tax schedule, the full expensing of physical‐capital investment, and the elimination of double taxation of business income. The most important element of the reform is the flattening of the marginal tax schedule. Without this element, the combined effects of the other parts of the reform can actually reduce long‐run growth. In the years immediately following the reform, the transition dynamics implied by the neoclassical growth model are quite similar to that of the endogenous growth model. (JEL E62, H21)

Government education expenditures, Human capital, Heterogeneous agents, Life-cycle model, E62, I22, H52, J24,