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Non-linear effects of taxation on growth

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  • Nir Jaimovich
  • Sergio Rebelo

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

  • Nir Jaimovich & Sergio Rebelo, 2013. "Non-linear effects of taxation on growth," FRB Atlanta CQER Working Paper 2013-02, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedacq:2013-02
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    More about this item

    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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