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Non-linear Effects of Taxation on Growth

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  • Nir Jaimovich
  • Sergio Rebelo

Abstract

We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18473.

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Date of creation: Oct 2012
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Handle: RePEc:nbr:nberwo:18473

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Cited by:
  1. Jonathan D. Ostry & Andrew Berg & Charalambos G. Tsangarides, 2014. "Redistribución, desigualdad y crecimiento," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 16(30), pages 53-81, January-J.
  2. Du Rietz, Gunnar & Johansson, Dan & Stenkula, Mikael, 2013. "The Evolution of Swedish Labor Income Taxation in a 150-year Perspective: An In-depth Characterization," Working Paper Series 977, Research Institute of Industrial Economics.

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