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

A major difficulty with synthesizing estimates on taxes and economic growth is that they measure different things. This follows because studies differ in the government budget constraints implied by their regression specifications. To address this problem, we use a taxonomy from Gemmell, Kneller, and Sanz (2009) that predicts the growth effects from various tax-spending-deficit combinations. We apply this taxonomy to 641 estimates from 42 studies of tax effects in OECD countries, categorizing them based on the tax-spending-deficit combinations implied by their regression specifications. We then apply meta-analysis to this sample of estimates to calculate the effect of the following, revenue-neutral tax policy: a onepercentage point decrease in distortionary taxes as part of a negative-growth fiscal policy, accompanied by a one-percentage point increase in non-distortionary taxes as part of a positivegrowth fiscal policy. Our headline result is that the associated 95% confidence interval implies an average increase in annual economic growth between 0.05 to 0.25 percent a year. This compares to an average annual growth rate of approximately 2.50 percent for the countries in our study. Another result from our analysis is that we find evidence of publication bias favoring negative estimates in the tax and growth literature. On the other hand, our results do not find any evidence to support the conventional wisdom that taxes on labor and capital are more distortionary than other types of taxes.