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Public Investment, Tax Policy and Economic Growth in Taiwan


  • Ming-Hung Yao

    () (Department of Public Finance and Taxation, National Kaohsiung University of Applied Sciences, Taiwan)

  • Wen-Den Chen

    (Department of Economics, Tunghai University, Taiwan)

  • Shu-Chun Lin

    (Department of Economics, Tunghai University, Taiwan)


This paper applies Kocherlakota and Yi's (1997) model to discuss the effects of public investment and tax policies (tax burden and tax mix) on economic growth using Taiwanese data from 1960 to 2010. These effects changed structurally in 1990. First, public investment had no impact on economic growth before 1990. After 1990, the benefits resulting from the effects of public investment on economic growth outweighed the crowding-out effect on private investment. Public investment hence had a positively significant effect on economic growth. Second, the growth rate of direct tax relative to indirect tax has negatively affected the economic growth. Third, the tax burden has had no significant impact on economic growth because the effects of direct and indirect taxation on economic growth cancel each other out. In order to promote economic growth, we suggest that the government increase public investment and adjust tax mixes, such as by lowering the ratio of direct to indirect tax.

Suggested Citation

  • Ming-Hung Yao & Wen-Den Chen & Shu-Chun Lin, 2013. "Public Investment, Tax Policy and Economic Growth in Taiwan," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 9(1), pages 77-102, January.
  • Handle: RePEc:jec:journl:v:9:y:2013:i:1:p:77-102

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    More about this item


    economic growth; public investment; tax burden; tax structure;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General


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