Service Sector And Optimal Taxation In An Endogenous Growth Model

Abstract

The paper entitled “Service sector and optimal taxation in an endogenous growth model” is formed in a command economy framework. In this model, the commodity output is produced with physical capital only, where the skilled labour is being used for producing the service good. Moreover, in this model, per capita government expenditure is used to create human capital. The model derives the optimal tax rate and steady-state growth path in an endogenous growth framework in a two-sector economy, when the service sector is being taxed only. This paper has done comparative static analysis on optimum service tax. The influence of population growth and the intensity of preference towards commodity consumption on service tax is analysed here.