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The growth effects of tax rates in the OECD

Author

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  • Norman Gemmell
  • Richard Kneller
  • Ismael Sanz

Abstract

This paper explores the merits of macro‐ and micro‐based tax rate measures within an open economy “fiscal policy and growth” model. Using annual data for 15 OECD countries we find statistically small, non‐robust long‐run growth effects of macro‐based average tax rates on capital income and consumption, but some evidence for average labour income tax effects. Changes in “micro” marginal income tax rates at both the personal and corporate levels yield statistically robust GDP responses of modest size. Both domestic and foreign corporate taxes appear relevant. In general, tax effects on GDP operate largely via factor productivity rather than factor accumulation. Les effets de croissance des taux d'imposition dans les pays de l'OCDE. Les auteurs utilisent un modèle de politique fiscale et de croissance dans une économie ouverte pour évaluer les mérites des mesures macro et micro des taux d'imposition. À l'aide des données annuelles de 15 pays de l'OCDE, on montre que les effets sur la croissance à long terme des taux moyens d'imposition (de type macro) sur le revenu du capital et la consommation sont statistiquement faibles et pas robustes, mais que pour les taux moyens d'imposition de ce type sur le revenu du travail il semble qu'il y a des effets. Des changements dans les taux d'imposition du revenu marginal (de type micro) – tant au niveau personnel que corporatif – engendrent des réponses statistiquement robustes sur le PIB mais un impact modeste. À la fois les impôts (domestiques et étrangers) sur les corporations sont pertinents. En général, les effets de la fiscalité sur le PIB opèrent largement via la productivité des facteurs plutôt que via l'accumulation des facteurs.

Suggested Citation

  • Norman Gemmell & Richard Kneller & Ismael Sanz, 2014. "The growth effects of tax rates in the OECD," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(4), pages 1217-1255, November.
    • Handle: RePEc:wly:canjec:v:47:y:2014:i:4:p:1217-1255
    DOI: 10.1111/caje.12105
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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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