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Taxes and Economic Growth in OECD Countries: A Meta-Analysis

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This paper uses meta-analysis to evaluate the results of 42 studies and 641 individual estimates of the effect of taxes on economic growth in OECD countries. Our analysis addresses a number of difficult coding issues such as: implications of the government budget constraint for interpretations of tax effects; units of measurement for economic growth rates and tax rates; implications of equation specifications that measure short-run, medium-run, and long-run effects; length of time period (annual data versus multi-year periods); and other factors. Our main findings are: Estimates in the literature are characterized by significant (negative) publication bias. After controlling for publication bias, we find that tax policies predicted by growth theory to be growth-retarding, such as the use of distortionary taxes to fund unproductive expenditures, are significantly associated with lower economic growth. Tax polices predicted to be growth-enhancing, such as the use of non-distortionary taxes to fund productive expenditures, are significantly associated with higher economic growth. The estimated differences in these policies indicate that there is scope for tax policy to have a meaningful impact on economic growth. Finally, we find weak evidence that taxes on labour are particularly growth-inhibiting, while the evidence for other types of taxes is mixed.

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  • Nazila Alinaghi & W. Robert Reed, 2018. "Taxes and Economic Growth in OECD Countries: A Meta-Analysis," Working Papers in Economics 18/09, University of Canterbury, Department of Economics and Finance.
  • Handle: RePEc:cbt:econwp:18/09
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    2. Strohner Ludwig & Berger Johannes & Thomas Tobias, 2019. "Sekt oder Selters? – Ökonomische Folgen der Reformzurückhaltung bei der Beendigung des Solidaritätszuschlags," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(4), pages 313-330, February.

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    Keywords

    Meta-analysis; taxes; economic growth; OECD;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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