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Non-linear effects of taxation on growth

  • Nir Jaimovich
  • Sergio Rebelo

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 Federal Reserve Bank of Atlanta in its series FRB Atlanta CQER Working Paper with number 2013-02.

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Date of creation: 2013
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Handle: RePEc:fip:fedacq:2013-02
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