Capital Taxation, Growth, and Non-renewable Resources

The conventional view within the endogenous growth literature is that interest income taxes impede economic growth and investment subsidies promote economic growth. The present paper lays out a simple framework to see whether this is still true when non-renewable resources enter the ”growth engine” in an essential way. It is not! The framework allows a rich set of determinants of longrun growth, including some fiscal policy measures, but interest income taxes and investment subsidies are not among these. The results not only contrast with the modern literature on taxes and endogenous growth, but also with observations in the literature from the 1970’s on non-renewable resources and taxation - observations which were not based on general equilibrium considerations.