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This paper studies the aggregate and distributional implications of introducing consumption taxes into an otherwise deterministic version of the standard neoclassical growth model with income taxes only and heterogeneity across agents. In particular, the economic agents differ among each other with respect to whether they are allowed to save (in physical capital) or not. Policy is optimally chosen by a benevolent Ramsey government. The main theoretical finding comes to confirm the widespread belief that the introduction of consumption taxes into a model with income taxes only, creates substantial efficiency gains for the economy as whole, but at the cost of higher income inequality. In other words, consumption taxes reduce the progressivity of the tax system, and maybe, from a normative point of view, this result justifies the design of a set of subsidies policies which will aim to outweigh the regressive effects of the otherwise more efficient consumption taxes.

We investigate the effects of judicial efficiency on economic growth using a new dataset over the period 2010–2018 drawn by the European Union Justice Scoreboard. To do so, we estimate a growth equation controlling for alternative de facto judicial efficiency indicators. Our findings suggest that operational inefficiencies of judicial systems undermine economic growth, weakening its capability to safeguard the enforcement of private contracts and the security of property rights. Our results are robust when we account for endogeneity and also provide significant policy implications.