Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel of OECD Countries

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Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel of OECD Countries

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Jens Arnold

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Jens Matthias Arnold

Abstract

This paper examines the relationship between tax structures and economic growth by entering indicators of the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the accumulation of physical and human capital are accounted for. The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable property, seem to be the most growth-friendly, followed by consumption taxes and then by personal income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita. These findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue base towards recurrent property and consumption taxes and away from income taxes, especially corporate taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes and growth. All of the results are robust to a number of different specifications, including controlling for other determinants of economic growth and instrumenting tax indicators.

La structure fiscale a-t-elle un effet sur la croissance économique ? : Évidences empiriques d’un panel de pays de l’OCDE
Cet article étudie le lien entre la structure de la fiscalité et la croissance économique. L’analyse empirique inclut des indicateurs sur la répartition des taxes dans des équations de croissance pour un panel de 21 pays de l’OCDE, en prenant en compte l’accumulation du capital physique et du capital humain. Les résultats montrent que les impôts sur le revenu sont en général associés avec une croissance plus faible que celle associée aux impôts sur la consommation et sur le patrimoine. Plus précisément, nous établissons un classement des instruments de taxation au regard de leur lien avec la croissance. Les impôts sur le patrimoine, et particulièrement les impôts périodiques sur la propriété immobilière, semblent être les plus favorables à la croissance, suivies immédiatement des impôts sur la consommation. Les impôts sur le revenu des individus semblent être significativement moins favorables, et les impôts sur le revenu des sociétés ont les effets les plus négatifs sur le PIB par tête. Ces résultats suggèrent que les réformes augmentant les impôts sur le patrimoine et la consommation au détriment de ceux sur les entreprises seraient susceptibles d’améliorer les perspectives de croissance économique. L’article trouve également les signes d’une relation négative entre la progressivité des impôts sur le revenu des individus et la croissance. Tous les résultats précédents sont robustes à différentes spécifications, incluant le contrôle des autres déterminants de la croissance économique et l’instrumentation des indicateurs de taxation.

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Paper provided by OECD, Economics Department in its series OECD Economics Department Working Papers with number 643.

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Date of creation: 09 Oct 2008
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Handle: RePEc:oec:ecoaaa:643-en

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-10-21 (All new papers)
NEP-MAC-2008-10-21 (Macroeconomics)
NEP-PBE-2008-10-21 (Public Economics)

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