Tax-spending policies and economic growth: Theoretical predictions and evidence from the OECD

Tax structure, growth, and welfare in the UK

“…We calculate the welfare gains/losses of increasing the ratio of consumption to labour, capital to consumption, and labour to capital tax rates. The results are presented in subplots (3,1) to (3,3) respectively in Figure 3. In each case, the gains/losses are calculated with respect to the mean value of the respective tax ratios in the data.…”

“…Subplots (1,2) and (1,3) show respectively the growth e¤ects from increases in the capital tax rate when the consumption tax rate is reduced, and from increases in the labour tax rate when the capital tax rate is reduced. In all experiments, all the other policy rate components in the government budget constraint remain unchanged.…”

“…There has also been a lot of empirical work conducted on the link between growth rates and tax structure (see, e.g. Mendoza et al (1997) and also Angelopoulos et al (2007a) for a recent review of this literature). Broadly consistent with the …ndings of the quantitative DGE models, the preponderance of estimation evidence suggests that tax reform has either small or insigni…cant e¤ects on growth.…”

“…Cooley and Hansen (1992) 2 . Third, by allowing for externalities from per 1 Note that taxes on goods and services constitute about 28.5% of total tax revenue in the UK, see, e.g. IMF Government Finance Statistics.…”

“…public investment, education and consumption. Second, by including a consumption tax 1 , which allows us to examine the growth and welfare tradeo¤s between income (capital and labor) and consumption taxes, as in e.g. Cooley and Hansen (1992) 2 .…”