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On the effects of taxation on growth: an empirical assessment

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  • Alfò, Marco
  • Carbonari, Lorenzo
  • Trovato, Giovanni

Abstract

We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965–2010. To do this, we estimate a version of the model proposed by Mankiw, Romer and Weil [(1992) Quarterly Journal of Economics 107, 407–437.] augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique—namely, a Finite Mixture Model—which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model, the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).

Suggested Citation

  • Alfò, Marco & Carbonari, Lorenzo & Trovato, Giovanni, 2023. "On the effects of taxation on growth: an empirical assessment," Macroeconomic Dynamics, Cambridge University Press, vol. 27(5), pages 1289-1318, July.
    • Handle: RePEc:cup:macdyn:v:27:y:2023:i:5:p:1289-1318_5
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    Cited by:

    1. Andrei Ionut Husman, 2020. "Taxation And Economic Development In The Former Communist Bloc. A Panel Data Approach," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 5(2), pages 83-91, September.
    2. Leisan A. Gafarova, 2025. "Priority Areas for Strengthening the Tax Capacity of Municipalities in Russia," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 11(2), pages 358-380.
    3. Busato, Francesco & Varlese, Monica & Ulloa Severino, Claudia, 2022. "Public debt heterogeneity at country level: an empirical analysis," MPRA Paper 113812, University Library of Munich, Germany.
    4. Sodiq Arogundade & Maria Ngarachu & Olayinka Bandele, 2025. "Innovative development financing amidst uncertainty: how can African countries leverage domestic resource mobilization?," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 14(1), pages 1-23, December.
    5. Kenc, Turalay & Cevik, Emrah Ismail, 2024. "Global corporate tax policy space," Economic Systems, Elsevier, vol. 48(2).
    6. Isubalew Daba Ayana & Wondaferahu Mulugeta Demissie & Atnafu Gebremeskel Sore, 2023. "Effect of government revenue on economic growth of sub-Saharan Africa: Does institutional quality matter?," PLOS ONE, Public Library of Science, vol. 18(11), pages 1-24, November.

    More about this item

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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