Your browser does not support the PubReader view.
Go to this page to see a list of supporting browsers.
Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 31, No. 4, pp.355-375
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 2018
Received 18 Oct 2017 Revised 29 Mar 2018 Accepted 04 Oct 2018

The Effect of the Consumption Tax on Economic Growth and Welfare with Money and Endogenous Fertility

Akihiko Kaneko ; Daisuke Matsuzaki
Akihiko Kaneko, Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishi-Waseda, Shinjuku-ku, Tokyo 169-8050, Japan, Tel: +81-3-3208-1197 akaneko@waseda.jp
Daisuke Matsuzaki, Corresponding author, Faculty of Economics, Toyo University, 5-28-20, Hakusan, Bunkyou-ku, Tokyo 112-8606, Japan, Tel: +81-3-3945-4833 matsuzaki@toyo.jp

JEL Classification: E60, J13, O42

Abstract

In this study, we examine the effect of consumption tax on the growth rate and welfare in a model with money and endogenous fertility. First, we show that an increase in consumption tax always reduces the economic growth rate but has an ambiguous effect on welfare. We show a numerical example based on Japanese data and demonstrate the likelihood that increasing the consumption tax decreases welfare. We also compare the effects of consumption tax financing and monetary financing on growth rate and welfare.

Keywords:

Consumption tax, Endogenous fertility, Endogenous growth, Money-in-the-utility-function model

Acknowledgments

The authors wish to thank the participants of the 25th Pacific Conference of the RSAI in Taiwan. This work was supported in part by a Waseda University Grant for Special Research Projects [No. 2017K-012] (Akihiko Kaneko); JSPS KAKENHI Grant Numbers No. JP17K03727 (Akihiko Kaneko), and No. JP16K03664 (Daisuke Matsuzaki). The authors are solely responsible for any errors.

References

  • Abel, A. B. and O. J. Blanchard, “An Intertemporal Model of Saving and Investment.” Econometrica 51 (No. 3 1983): 675–692. [https://doi.org/10.2307/1912153]
  • Bank of Japan. BOJ Time-Series Data Search. Accessed June 15, 2017. Available at https://www.stat-search.boj.or.jp/index_en.html
  • Becker, G., K. M. Murphy, and R. Tamura. “Human Capital, Fertility, and Economic Growth.” Journal of Political Economy 98 (No. 5 1990): S12–S37. [https://doi.org/10.1086/261723]
  • Chang, W.-Y. “Relative Wealth, Consumption Taxation, and Economic Growth.” Journal of Economics 88 (No. 2 2006): 103–129. [https://doi.org/10.1007/s00712-006-0185-7]
  • Chang, W.-Y., Y.-A. Chen, and J.-J. Chang. “Growth and Welfare Effects of Monetary Policy with Endogenous Fertility.” Journal of Macroeconomics 35 (2013): 117–130. [https://doi.org/10.1016/j.jmacro.2012.10.004]
  • Fan, C. S. “The Value of Time and the Interaction of the Quantity and the Quality of Children.” Seoul Journal of Economics 10 (No. 2 1997): 135–158.
  • Futagami, K. and J. Doi. “Commodity Taxation and Economic Growth.” Japanese Economic Review 55 (No. 1 2004): 46–55. [https://doi.org/10.1111/j.1468-5876.2004.00293.x]
  • Galor, O. and A. Mountford. “Trading Population for Productivity: Theory and Evidence.” Review of Economic Studies 75 (No. 4 2008): 1143–1179. [https://doi.org/10.1111/j.1467-937X.2008.00501.x]
  • Galor, O. and D. N. Weil. “Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond.” American Economic Review 90 (No. 4 2000): 806–828. [https://doi.org/10.1257/aer.90.4.806]
  • Holman, J. A. “GMM Estimation of a Money-in-the-utility-function Model: The Implications of Functional Forms.” Journal of Money, Credit, and Banking 30 (No. 4 1998): 679–698. [https://doi.org/10.2307/2601124]
  • Itaya, J. “Tax Incidence in a Two-sector Growing Economy with Perfect Foresight: Long-run Analysis.” Journal of Public Economics 44 (No. 1 1991): 95–118. [https://doi.org/10.1016/0047-2727(91)90059-B]
  • Jones, C. I. “Was an Industrial Revolution Inevitable? Economic Growth Over the Very Long Run.” Advances in Macroeconomics 1 (No. 2 2001): 1–43. [https://doi.org/10.2202/1534-6013.1028]
  • Kalemli-Ozcan, S. “Does the Mortality Decline Promote Economic Growth?” Journal of Economic Growth 7 (No. 4 2002): 411–439. [https://doi.org/10.1023/A:1020831902045]
  • Kaneko, A., H. Kato, T. Shinozaki, and M. Yanagihara. “Bequeathed Tastes and Fertility in an Endogenous Growth Model.” Economic Bulletin 36 (No. 3 2016): 1422–1429.
  • Kaneko, A. and D. Matsuzaki. “Consumption Tax and Economic Growth in an Overlapping Generations Model with Money Holdings.” Journal of Economics 98 (No. 2 2009): 155–175. [https://doi.org/10.1007/s00712-009-0088-5]
  • Matsuzaki, D. “The Effects of a Consumption Tax on Effective Demand under Stagnation.” Japanese Economic Review 54 (No. 1 2003): 101–118. [https://doi.org/10.1111/1468-5876.00248]
  • Palivos, T. “Endogenous Fertility, Multiple Growth Paths, and Economic Convergence.” Journal of Economic Dynamics and Control 19 (No. 8 1995): 1489–1510. [https://doi.org/10.1016/0165-1889(94)00839-A]
  • Pecorino, P. “Tax Structure and Growth in a Model with Human Capital.” Journal of Public Economics 52 (No. 2 1993): 251–271. [https://doi.org/10.1016/0047-2727(93)90023-M]
  • Rebelo, S. “Long-run Policy Analysis and Long-run Growth.” Journal of Political Economy 99 (No. 3 1991): 500–521. [https://doi.org/10.1086/261764]
  • Schenone, O. H. “A Dynamic Analysis of Taxation.” American Economic Review 65 (No. 1 1975): 101–114.
  • Tabata, K. “Inverted U-shaped Fertility Dynamics, the Poverty Trap and Growth.” Economics Letters 81 (No. 2 2003): 241–248. [https://doi.org/10.1016/S0165-1765(03)00188-5]
  • World Bank. World Development Indicators. Accessed June 15, 2017. Available at http://databank.worldbank.org/ddp/home.do
  • Weil, P. “Is Money Net Wealth? International Economic Review 32 (No. 1 1991): 37–53. [https://doi.org/10.2307/2526930]
  • Yip, C. K. and J. Zhang, “A Simple Endogenous Growth Model with Endogenous Fertility: Indeterminacy and Uniqueness.” Journal of Population Economics 10 (No. 1 1997): 97–110. [https://doi.org/10.1007/s001480050033]