Optimal Taxation, Economic Growth and Income Inequality in the United States

Policy Reports | Economy | Taxes

No. 316
Tuesday, September 23, 2008
by Gerald W. Scully

Up to a point, government spending on public goods - such as national defense and protection of property - can raise the economic growth rate. However, as government spending rises, the tendency is to increase spending on nonproductive income transfers - such as subsidy and welfare programs. Research indicates that the high levels of taxation required to pay for such income transfers inhibit economic growth, whereas lower taxes can raise the rate of economic growth.

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