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Optimal Tax Structure for Consumption and Income Inequality:an Empirical Assessment

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  • António Afonso
  • José Alves

Abstract

In the present empirical analysis, we try to assess the impact of taxation on investment, growth. In particular, and by using gross fixed capital formation as a proxy for investment, we intend to evaluate the impact of the taxation structure in investment dynamics, in a short and a long-run perspectives. This empirical exercise was conducted for all OECD countries, during the 1980-2015 period. Through panel data econometric techniques, we find optimal tax-investment threshold values, especially higher for short-term than for long-term horizon. In addition, we find optimal income taxation around 9%, in percentage of GDP, an average optimal value of 12.7% for consumption taxes to promote annual investment growth.

Suggested Citation

  • António Afonso & José Alves, 2018. "Optimal Tax Structure for Consumption and Income Inequality:an Empirical Assessment," Working Papers REM 2018/51, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0512018
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_051_2018.pdf
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    More about this item

    Keywords

    Investment Growth; Tax systems; Fiscal Policy; Optimal taxation;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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