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On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture

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  • Asea, Patrick
  • Mendoza, Enrique G
  • Milesi-Ferretti, Gian Maria

Abstract

Harberger’s superneutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice tax policy is ineffective as an instrument to promote growth. This paper provides evidence to support this view by examining the predictions of endogenous growth models driven by human capital accumulation. The empirical work is based on numerical simulations and cross-country regressions, using a new methodology for constructing aggregate effective tax rates. Results show significant investment effects from taxes that are consistent with negligible growth effects. The results are robust to the introduction of other growth determinants.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1378.

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Date of creation: Apr 1996
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Handle: RePEc:cpr:ceprdp:1378

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Keywords: Endogenous Growth; Private Investment; Tax Rate Estimates; Tax Structure;

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