DNN

As a rule, an increase in a nation's physical product results either
from more labor, more capital, better techniques (or the adaptation
of more knowledge), or a combination of these factors, with natural
resources treated as a constant. The effects of taxation on economic
growth, therefore, can be analyzed in terms of its influence on labor
supply, on capital formation, and on technological change or increased
knowledge. Thus our study is confined primarily to the following
fields: effects of taxation on the incentive to work, on the
desire and ability to invest (or to save), and on the modernizing and
rationalizing of production.
Since we are interested in the total product, we must consider the
conditions of economic growth for the economy as a whole. This
means that total output not only depends on the supply of labor,
capital equipment, and the state of knowledge, but also on other
conditions such as the mobility of production factors, the degree of
competition, the optimal allocation of resources, etc. Thus we have
to see if tax policy contributes to higher factor mobility and if it
either helps or hinders resources from being more effectively allocated.