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Non-linear Effects of Taxation on Growth

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  • Rebelo, Sérgio
  • Jaimovich, Nir

Abstract

We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.

Suggested Citation

  • Rebelo, Sérgio & Jaimovich, Nir, 2012. "Non-linear Effects of Taxation on Growth," CEPR Discussion Papers 9261, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9261
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    More about this item

    Keywords

    Growth; Taxes;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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