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The impact of tax structure on investment: an empirical assessment for OECD countries

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  • Jose Alves

    (ISEG/UL - Universidade de Lisboa, Department of Economics, Lisboa, Portugal ; REM - Research in Economics and Mathematics, UECE - Research Unit on Complexity and Economics (UECE is supported by FCT - Fundacao para a Ciencia e a Tecnologia, Portugal), Lisboa, Portugal)

Abstract

Does taxation structure have an impact on investment dynamics? In our paper we evaluate the share of tax revenues in GDP and investment outcomes, making use of gross fixed capital formation as a proxy for investment. This empirical analysis is carried out for all OECD countries, during the period of 1980-2015, to assess the tax system composition effects in both the short and the long-run. Resorting to panel data econometric techniques, the paper also aims to find optimal tax-investment threshold values. Our results lead us to conclude that there is a maximising effect of income taxation on investment growth when revenues from this tax source are about 10.7%. Furthermore, we find that revenues from social security contributions are detrimental to growth, in both the short and the long-run, while tax revenues from firms and consumption are only detrimental in the short-run.

Suggested Citation

  • Jose Alves, 2019. "The impact of tax structure on investment: an empirical assessment for OECD countries," Public Sector Economics, Institute of Public Finance, vol. 43(3), pages 291-309.
    • Handle: RePEc:ipf:psejou:v:43:y:2019:i:3:p:291-309
    DOI: 10.3326/pse.43.3.4
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    Cited by:

    1. Balázs Égert, 2021. "Investment in OECD Countries: a Primer," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 200-223, June.
    2. Mdee, Ephraim Oswald & Aikaeli, Jehovaness & Luvanda, Eliab, 2022. "The Impact of Taxes on Capital Formation in Tanzania," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.
    3. Bruno Ćorić & Vladimir Šimić, 2021. "Economic disasters and aggregate investment," Empirical Economics, Springer, vol. 61(6), pages 3087-3124, December.
    4. Lucas Menescal & José Alves, 2023. "Tax structure and public sector efficiency: new evidence for developing countries," Working Papers REM 2023/0291, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Lucas Menescal & José Alves, 2022. "Optimal Threshold Taxation: An Empirical Investigation for Developing Economies," CESifo Working Paper Series 9782, CESifo.

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    More about this item

    Keywords

    investment growth; tax systems; fiscal policy; optimal taxation;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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