Optimal taxation in an endogenous growth model with variable population and public expenditure

Abstract In this paper we analyze second‐best optimal taxation in an endogenous‐growth model driven by public expenditure, in presence of endogenous fertility and labor supply. Normative analysis shows positive taxes on the number of children, which are necessary to correct for congestion in the publicly provided input (such as education and healthcare), negative public debt. Results on capital and labor income taxation depend on whether the public input is optimally provided.