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Taxation and Economic Growth

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Author Info

  • Åsa Johansson
  • Chistopher Heady
  • Jens Arnold
  • Bert Brys
  • Laura Vartia

Abstract

This paper investigates the design of tax structures to promote economic growth. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption. The paper breaks new ground by using data on industrial sectors and individual firms to show how re-designing taxation within each of the broad tax categories could in some cases ensure sizeable efficiency gains. For example, reduced rates of corporate tax for small firms do not seem to enhance growth, and high top marginal rates of personal income tax can reduce productivity growth by reducing entrepreneurial activity. While the paper focuses on how taxes affect growth, it recognises that practical tax reform requires a balance between the aims of efficiency, equity, simplicity and revenue raising. Fiscalité et croissance économique Ce document examine la meilleure élaboration du système fiscal afin de promouvoir la croissance économique. Il suggère une classification des impôts selon le modèle « fiscalité et croissance », venant étayer des résultats déjà connus dans des publications antérieures, mais proposant une ventilation plus détaillée des différents impôts. Il s’avère que les impôts sur les sociétés grèvent le plus la croissance, suivis par les impôts sur le revenu des personnes physiques, et ensuite les impôts sur la consommation. Les impôts sur l’immobilier semblent les moins nocifs. Une réforme fiscale sans incidence sur les impôts et orientée sur la croissance consisterait à transférer une partie de la base imposable des impôts sur le revenu sur des impôts moins générateurs de distorsion, comme les impôts récurrents sur l’immobilier ou ceux sur la consommation. Ce document est innovant dans la mesure où il utilise des données sur les secteurs industriels et les sociétés individuelles afin de démontrer que le fait d’élaborer une nouvelle fiscalité au sein d’une large catégorie d’impôts pourrait, dans certains cas, permettre un gain d’efficacité non négligeable. Par exemple, des taux réduits d’impôts sur les sociétés pour les petites entreprises ne semble pas augmenter favoriser la croissance; de même, des taux marginaux élevés d’impôts sur les revenus des personnes physiques peut réduire la courbe de la productivité en réduisant l’activité entrepreneuriale. Alors que ce document est centré sur la manière dont les impôts affectent la croissance, il reconnaît qu’une réforme fiscale pragmatique nécessite un équilibre entre efficience, équité, simplicité et levée d’impôts.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 620.

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Date of creation: 03 Jul 2008
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Handle: RePEc:oec:ecoaaa:620-en

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Related research

Keywords: taxation; economic growth; productivity; investment; tax policy; tax design; croissance économique; productivité; investissement; politique fiscale; imposition; conception fiscale;

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Cited by:
  1. Michel Dumont, 2012. "Working Paper 08-12 - Impact des subventions et des incitations fiscales sur la recherche et le développement des entreprises en Belgique (2001-2009)
    [Working Paper 08-12 - De impact van subsidies    ," Working Papers 1208, Federal Planning Bureau, Belgium.
  2. Lukas Reiss & Walpurga Köhler-Töglhofer, 2011. "Austria’s Tax Structure in International Comparison – A Statistical and Economic Analysis," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 21-40, April.
  3. Daianu, Daniel & Kallai, Ella & Lungu, Laurian, 2012. "Tax Policy under the Curse of Low Revenues: The Case of Romania (Part I)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 156-186, March.
  4. Eckhard Wurzel, 2009. "Finanzpolitik: Stärker auf Ergebnisse hin orientieren," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 62(18), pages 38-42, 09.
  5. Hansjörg Blöchliger & José Maria Pinero Campos, 2011. "Tax Competition Between Sub-Central Governments," OECD Working Papers on Fiscal Federalism 13, OECD Publishing.
  6. Crafts, Nicholas, 2012. "Western Europe's Growth Prospects: an Historical Perspective," CEPR Discussion Papers 8827, C.E.P.R. Discussion Papers.
  7. Rafal Kierzenkowski, 2009. "The Challenge of Restoring French Competitiveness," OECD Economics Department Working Papers 720, OECD Publishing.
  8. Lukasz Rawdanowicz & Eckhard Wurzel & Ane Kathrine Christensen, 2013. "The Equity Implications of Fiscal Consolidation," OECD Economics Department Working Papers 1013, OECD Publishing.
  9. Silvia Rocha-Akis, 2012. "The Pain and Gain of Offshoring: The Effects of Tax Progression in a Segmented Labour Market," CESifo Working Paper Series 3739, CESifo Group Munich.
  10. European Commission, 2012. "Taxation trends in the European Union: 2012 edition," Taxation trends 2012, Directorate General Taxation and Customs Union, European Commission.
  11. Maria-Grazia Attinasi & Cristina Checherita-Westphal & Malte Rieth, 2011. "Personal income tax progressivity and output volatility: evidence from OECD countries," Working Paper Series 1380, European Central Bank.
  12. European Commission, 2010. "Tax Policy after the Crisis: Monitoring Tax Revenues and Tax Reforms in EU Member States 2010 Report," Taxation Papers 24, Directorate General Taxation and Customs Union, European Commission.
  13. Hans Pitlik & Margit Schratzenstaller, 2011. "Growth Implications of Structure and Size of Public Sectors," WIFO Working Papers 404, WIFO.
  14. Tagkalakis, Athanasios, 2011. "Fiscal policy and financial market movements," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 231-251, January.
  15. Nina Hetzer & Andreas Peichl, 2010. "Steuerstrukturreform trotz leerer Kassen?!," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 63(01), pages 28-35, 01.
  16. Crafts, Nicholas, 2012. "Creating Competitive Advantage: Policy Lessons from History," CAGE Online Working Paper Series 90, Competitive Advantage in the Global Economy (CAGE).
  17. Bird, Richard, 2010. "Taxation and Development," World Bank - Economic Premise, The World Bank, issue 34, pages 1-5, September.
  18. Institute for Fiscal Studies, 2011. "A retrospective evaluation of elements of the EU VAT system," Taxation Studies 0039, Directorate General Taxation and Customs Union, European Commission.

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