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Tax structure and growth: How robust is the empirical evidence?

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  • Xing, Jing
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    Abstract

    This paper examines the link between the composition of tax revenues and the level of income per capita in the long run. I find that the “tax and growth ranking” suggested by some recent empirical studies is not robust under different assumptions about heterogeneity across countries of the long-run and short-run coefficients in the underlying econometric model. Evidence for significant tax structure effects depends on long-run parameter homogeneity restrictions, underlying pooled mean group estimation, which are found to be invalid.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 117 (2012)
    Issue (Month): 1 ()
    Pages: 379-382

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    Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:379-382

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    Web page: http://www.elsevier.com/locate/ecolet

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    Keywords: Tax structure; Income per capita; Pooled mean group estimator;

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    1. Steve Bond & Asli Leblebicioglu & Fabio Schiantarelli, 2004. "Capital Accumulation and Growth: A New Look at the Empirical Evidence," Economics Papers 2004-W08, Economics Group, Nuffield College, University of Oxford.
    2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    3. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
    4. Jens Matthias Arnold & Bert Brys & Christopher Heady & Åsa Johansson & Cyrille Schwellnus & Laura Vartia, 2011. "Tax Policy for Economic Recovery and Growth," Economic Journal, Royal Economic Society, vol. 121(550), pages F59-F80, February.
    5. Jing Xing, 2011. "Does tax structure affect economic growth? Empirical evidence from OECD countries," Working Papers 1120, Oxford University Centre for Business Taxation.
    6. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1027-1043, June.
    7. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
    8. Widmalm, Frida, 2001. " Tax Structure and Growth: Are Some Taxes Better Than Others?," Public Choice, Springer, vol. 107(3-4), pages 199-219, June.
    9. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
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    Cited by:
    1. Santiago Acosta Ormaechea & Jiae Yoo, 2012. "Tax Composition and Growth," IMF Working Papers 12/257, International Monetary Fund.
    2. Godar, Sarah & Paetz, Christoph & Truger, Achim, 2014. "Progressive tax reform in OECD countries : perspectives and obstacles," ILO Working Papers 485510, International Labour Organization.

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