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Non-linear Effects of Taxation on Growth

  • Jaimovich, Nir
  • Rebelo, Sérgio

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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9261.

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Date of creation: Dec 2012
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Handle: RePEc:cpr:ceprdp:9261
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