Tax rates and economic growth in the OECD countries

Abstract

This article proposes refined econometric estimates of effective marginal income tax rates for 23 OECD countries from 1951 to 1990. Panel regressions find such measures negatively correlated with economic growth. These results are consistent with endogenous growth theories and opposite to those of most empirical literature, which relies on measures of effective average tax rates. The negative correlation is also robust to consideration of other growth determinants. (JEL H21, O11)

Direct versus Indirect Taxation: Trends, Theory, and Economic Significance

“…The coefficient on initial subsample GDP per capita is negative and significant, which is consistent with the assumption of the conditional convergence of growth rates reported in previous studies (Barro, 1991;Mankiw et al, 1992;Kneller et al, 1999). Inflation affects economic growth rate negatively, supporting the hypothesis that, among other things, inflation increases investment uncertainty and, therefore, reduces economic agents' incentives to invest Galli, 2001 andRomero-Avila and Strauch, 2008). Trade openness has a posi tive and significant effect on the growth rate, which is consistent with previous findings (Dollar, 1992;Edwards, 1998;Frankel and Romer, 1999;and Dollar and Kraay, 2003).…”

“…Widmalm also finds evidence that tax progressivity, measured in terms of the long-run income elasticity of tax revenue, tends to reduce economic growth and that progressivity affects growth, not so much via physical capital accumulation, as through the accumulation of human capital. Padovano and Galli (2001), also using panel data for 23 OECD countries covering the 1950s to the 1980s, find robust results that high marginal income rates and progressivity are negatively correlated with economic growth. The same conclusions are reached in Padovano and Galli (2002) with an updated panel of 25 industrialized countries covering 1970 to 1998.…”

The links between economic growth and tax revenue in Ghana: an empirical investigation

“…Indeed, studies such as Padovano and Galli (2001), Lee and Gordon (2004), Myles (2009), Mutaşcu and Dănuleţiu (2011), Ebrahimi and Vaillancourt (2012), Dackehag and Hansson (2012) obtained non-consensual results just as the theory suggests. The different results obtained by the available empirical studies do not permit the researcher to draw univocal conclusion about the impact of taxation on economic growth.…”

Unequal Family Lives

“…One of the ironies of contemporary economics is that a discipline that has its roots in the Greek term, Oikonomikos, or household rules, has devoted so little attention to the familial origins of contemporary macroeconomic growth. Recent research on the sources of economic growth has instead focused largely on human capital (e.g., education) (Aghion et al 2009), public policies (e.g., taxes and regulatory burdens) (Padovano and Galli 2001), and social norms (e.g., trust) (Bjornskov 2012; Young 1995) as drivers of growth. Important as these factors may be for growth, however, we believe that the culture, character, and composition of families in a society also matter for growth.…”