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Tax structure and macroeconomic performance

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  • Giampaolo Arachi
  • Valeria Bucci
  • Alessandra Casarico

Abstract

This paper reassesses the relationship between tax structure and long run income, using as indicators of tax structure both a new series of implicit tax rates based on Mendoza et al. (1997) and tax ratios, adopting a dynamic panel estimation strategy, and explicitly accounting for cross-section dependence in the panel. When implicit tax rates are used, the paper shows, the link between tax structure and long run income per capita is not robust to the adoption of different assumptions on observable and unobservable heterogeneity across countries. When tax ratios are used, there is some evidence of a negative impact of labour taxation on long run income, but this result is shown to capture non-fiscal effects coming from the evolution of the labour share. Turning to the short run, the research presented here finds strong evidence of a positive effect on per capita income of a tax shift from labour and capital taxation towards consumption taxation, which provides support for fiscal devaluations.

Suggested Citation

  • Giampaolo Arachi & Valeria Bucci & Alessandra Casarico, 2015. "Tax structure and macroeconomic performance," Working Papers 074, "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi.
  • Handle: RePEc:don:donwpa:074
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    References listed on IDEAS

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    Cited by:

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    2. Amèvi Rocard Kouwoaye, 2019. "Trade tax reforms and poverty in developing countries: Why do some countries benefit and others lose?," WIDER Working Paper Series wp-2019-66, World Institute for Development Economic Research (UNU-WIDER).
    3. Strohner, Ludwig & Thomas, Tobias, 2019. "Mehr Wachstum, Wohlstand und Beschäftigung: Ökonomische Effekte der Steuerreform 2020-23," Policy Notes 32, EcoAustria – Institute for Economic Research.
    4. Sacchidananda Mukherjee & Shivani Badola, 2023. "Macroeconomic Implications of Changes in Corporate Tax Rates: A Review," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(1), pages 20-41, March.
    5. Strohner Ludwig & Berger Johannes & Thomas Tobias, 2019. "Sekt oder Selters? – Ökonomische Folgen der Reformzurückhaltung bei der Beendigung des Solidaritätszuschlags," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(4), pages 313-330, February.
    6. Colin Davis & Ken‐ichi Hashimoto, 2018. "Corporate Tax Policy And Industry Location With Fully Endogenous Productivity Growth," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1136-1148, April.
    7. Milena Mathé & Gaetan Nicodeme & Savino Rua, 2015. "Tax shifts," Taxation Papers 59, Directorate General Taxation and Customs Union, European Commission.
    8. Berger, Johannes & Strohner, Ludwig & Thomas, Tobias, 2019. "Mehr Beschäftigung und Wohlstand durch Steuerreform erreichen," Policy Notes 29, EcoAustria – Institute for Economic Research.
    9. Minniti, Antonio & Venturini, Francesco, 2017. "The long-run growth effects of R&D policy," Research Policy, Elsevier, vol. 46(1), pages 316-326.
    10. Gbato, Andre, 2017. "Impact of taxation on growth in Subsaharan Africa: new evidence based on a new data set," MPRA Paper 80903, University Library of Munich, Germany.
    11. Fabian ten Kate & Petros Milionis, 2019. "Is capital taxation always harmful for economic growth?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 758-805, August.
    12. Kostarakos, Ilias & Varthalitis, Petros, 2020. "Effective tax rates in Ireland," Research Series, Economic and Social Research Institute (ESRI), number RS110, June.
    13. Berger, Johannes & Graf, Nikolaus & Koch, Philipp & Strohner, Ludwig & Thomas, Tobias, 2019. "Wirtschaftsstandort stärken, mehr Wohlstand und Beschäftigung erreichen," Policy Notes 36, EcoAustria – Institute for Economic Research.
    14. Sami Saafi & Meriem Bel Haj Mohamed & Abdeljelil Farhat, 2017. "Untangling the causal relationship between tax burden distribution and economic growth in 23 OECD countries: Fresh evidence from linear and non-linear Granger causality," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 14(2), pages 265-301, December.
    15. Giampaolo Arachi & Debora Assisi, 2021. "Fiscal devaluation and relative prices: evidence from the Euro area," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 685-716, June.
    16. Lagravinese, Raffaele & Liberati, Paolo & Sacchi, Agnese, 2020. "Tax buoyancy in OECD countries: New empirical evidence," Journal of Macroeconomics, Elsevier, vol. 63(C).
    17. Silvestro Sanzo & Mariano Bella & Giovanni Graziano, 2017. "Tax Structure and Economic Growth: A Panel Cointegrated VAR Analysis," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(2), pages 239-253, July.

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    More about this item

    Keywords

    long run income; tax structure; fiscal devaluation; cross-section dependence;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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