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Taxation and output growth in Africa

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  • Skinner, Jonathon

Abstract

This paper presents a framework for measuring how the structure of taxation and government spending affect output growth. It is shown that when countries are not following a steady-state growth path, static and dynamic distortions will affect output growth. In particular, taxes can affect output by; (1) reducing the marginal productivity of capital and labour, and (2) reducing the supply of capital and labour. The paper indicates that differences in tax policy can explain a substantial degree of variation in output growth among African countries. While measurement error and the potential for excluded variables suggest that the regression results be interpreted cautiously, the results imply that the structure, and not simply the level, of taxation can play an importantrole for encouraging growth in developing countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 73.

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Date of creation: 31 Aug 1988
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Handle: RePEc:wbk:wbrwps:73

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Keywords: Environmental Economics&Policies; Public Sector Economics&Finance; Economic Theory&Research; Achieving Shared Growth; Economic Growth;

References

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  1. Alan J. Auerbach & Laurence J. Kotlikoff & Jonathan Skinner, 1981. "The Efficiency Gains from Dynamic Tax Reform," NBER Working Papers 0819, National Bureau of Economic Research, Inc.
  2. David, Paul A., 1977. "Invention and accumulation in america's economic growth: A nineteenth-century parable," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 6(1), pages 179-228, January.
  3. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 12(1-2), pages 59-73.
  4. de Melo, Jaime A P, 1978. "Estimating the Costs of Protection: A General Equilibrium Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 92(2), pages 209-26, May.
  5. Koester, Reinhard B & Kormendi, Roger C, 1989. "Taxation, Aggregate Activity and Economic Growth: Cross-Country Evidence on Some Supply-Side Hypotheses," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 27(3), pages 367-86, July.
  6. Brent, Robert J., 1986. "Lagged reactions in short-run estimates of tax shifting of company income and sales taxes in Kenya," Journal of Development Economics, Elsevier, Elsevier, vol. 20(1), pages 15-32.
  7. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 16(2), pages 141-163, September.
  8. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, Elsevier, vol. 13(2), pages 161-175, February.
  9. Robinson, Sherman, 1971. "Sources of Growth in Less Developed Countries: A Cross-Section Study," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 85(3), pages 391-408, August.
  10. Landau, Daniel, 1986. "Government and Economic Growth in the Less Developed Countries: An Empirical Study for 1960-1980," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 35-75, October.
  11. Seidman, Laurence S, 1984. "Conversion to a Consumption Tax: The Transition in a Life-Cycle Growth Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(2), pages 247-67, April.
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