Public Expenditures, Taxes, Federal Transfers, and Endogenous Growth


  • Liutang Gong, Guanghua School of Management, Peking University, Beijing 100871, China ( Heng-Fu Zou, CEMA, Central University of Finance and Economics, Beijing, China 100081, and Shenzhen University, Wuhan University, and The World Bank.

  •  We are indebted to Professors Cuong Le Van and Myrna Wooders for their useful comments and help in revising this paper. All remaining errors are our own. This research was sponsored by the National Science Foundation for Distinguished Young Scholars (70725006).


This paper extends the Barro (1990) model with single aggregate government spending and one flat income tax to include public expenditures and taxes by multiple levels of government. It derives the rate of endogenous growth and, with both simulations and special examples, examines how that rate changes with respect to federal income tax, local taxes, and federal transfers. It also discusses the growth and welfare-maximizing choices of taxes and federal transfers.