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The growth effects of tax rates in the OECD

Author

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  • Norman Gemmell
  • Richard Kneller
  • Ismael Sanz

Abstract

This paper explores the merits of macro and microbased tax rate measures within an open economy fiscal policy and growth model. Using annual data for 15 OECD countries we find statistically small, nonrobust longrun growth effects of macrobased average tax rates on capital income and consumption, but some evidence for average labour income tax effects. Changes in micro marginal income tax rates at both the personal and corporate levels yield statistically robust GDP responses of modest size. Both domestic and foreign corporate taxes appear relevant. In general, tax effects on GDP operate largely via factor productivity rather than factor accumulation.

Suggested Citation

  • Norman Gemmell & Richard Kneller & Ismael Sanz, 2014. "The growth effects of tax rates in the OECD," Canadian Journal of Economics, Canadian Economics Association, vol. 47(4), pages 1217-1255, November.
    • Handle: RePEc:cje:issued:v:47:y:2014:i:4:p:1217-1255
    DOI: 10.1111/caje.12105
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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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