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Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture

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  • Patrick K. Asea
  • Gian-Maria Milesi-Ferretti
  • Enrique G. Mendoza

Abstract

Harberger’s superneutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. The theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 95/79.

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Length: 42
Date of creation: 01 Aug 1995
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Handle: RePEc:imf:imfwpa:95/79

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  1. Michael B. Devereux & David R. F. Love, 1994. "The Effects of Factor Taxation in a Two-Sector Model of Endogenous Growth," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 27(3), pages 509-36, August.
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  5. Enrique G. Mendoza & Linda L. Tesar, 1995. "Supply-side economics in a global economy," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 507, Board of Governors of the Federal Reserve System (U.S.).
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  16. Nouriel Roubini & Gian Maria Milesi-Ferrett, 1994. "Optimal Taxation of Human and Physical Capital in Endogenous Capital Models," NBER Working Papers 4882, National Bureau of Economic Research, Inc.
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Cited by:
  1. Jinli Zeng, 2002. "Reexamining the Interaction between Innovation and Capital Accumulation," Departmental Working Papers, National University of Singapore, Department of Economics wp0203, National University of Singapore, Department of Economics.
  2. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. José E. Boscá & José R. García & David Tagüas, 2005. "Effective Tax rates and Fiscal Convergence in the OECD: 1965-2001," Hacienda Pública Española, IEF, IEF, vol. 174(3), pages 119-141, September.
  4. Shaghil Ahmed & John H. Rogers, 1998. "Inflation and the great ratios: long-term evidence from the U.S," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 628, Board of Governors of the Federal Reserve System (U.S.).
  5. Marcin Piatkowski & Mariusz Jarmuzek, 2008. "Zero Corporate Income Tax in Moldova," IMF Working Papers 08/203, International Monetary Fund.

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