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Taxation of Income and Economic Growth: An Empirical Analysis of 25 Rich OECD Countries

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Abstract

Several empirical papers have studied the effect of government size, typically measured as government expenditures, on economic growth. There is no consensus on the direction of this impact, even though more recent studies tend to find a negative relationship between the general level of government expenditures and economic growth. This negative relationship is explained by the distortions that raising tax revenues cause on economic activities. There are, however, several ways to raise tax revenues that likely have different distortionary effects and, hence, may impact economic growth differently. This paper analyses how taxation of income influences economic growth. More precisely we study how statutory tax rates on corporate and personal income affect economic growth by using panel data from 1975 till 2010 for 25 rich OECD countries. We find that both taxation of corporate and personal income negatively influence economic growth. The correlation between corporate income taxation and economic growth is more robust, however.

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  • Dackehag , Margareta & Hansson, Åsa, 2012. "Taxation of Income and Economic Growth: An Empirical Analysis of 25 Rich OECD Countries," Working Papers 2012:6, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2012_006
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    Cited by:

    1. NANTOB, N'Yilimon, 2014. "Taxation and Economic Growth : An Empirical Analysis on Dynamic Panel Data of WAEMU Countries," MPRA Paper 61370, University Library of Munich, Germany, revised 30 Jan 2015.
    2. repec:nax:conyad:v:62:y:2017:i:3:p:1041-1057 is not listed on IDEAS
    3. NANTOB, N'Yilimon, 2014. "Taxes and Economic Growth in Developing Countries : A Dynamic Panel Approach," MPRA Paper 61346, University Library of Munich, Germany, revised 05 Feb 2015.
    4. Hlalefang Khobai & Khumbuzile Dladla, 2018. "The impact of taxation on economic growth in South Africa," Working Papers 1818, Department of Economics, Nelson Mandela University.
    5. Andrew Phiri, 2016. "The Growth Trade-off between Direct and Indirect Taxes in South Africa: Evidence from a STR Model," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(3 (Fall)), pages 233-250.
    6. repec:kap:itaxpf:v:25:y:2018:i:2:d:10.1007_s10797-017-9454-3 is not listed on IDEAS
    7. Takumah, Wisdom, 2014. "Tax Revenue and Economic Growth in Ghana: A Cointegration Approach," MPRA Paper 58532, University Library of Munich, Germany.
    8. Jesse Stroobants & Geert Bouckaert, 2013. "Towards Measurable and Auditable Efficiency Gains in the Flemish Public Sector," Public Organization Review, Springer, vol. 13(3), pages 245-260, September.
    9. Wisdom Takumah & Bernard Njindan Iyke, 2017. "The links between economic growth and tax revenue in Ghana: an empirical investigation," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 9(1), pages 34-55.
    10. Nazila Alinaghi & W. Robert Reed, 2016. "Taxes and Economic Growth in OECD Countries: A Meta-Analysis," Working Papers in Economics 16/37, University of Canterbury, Department of Economics and Finance.
    11. repec:eur:ejesjr:238 is not listed on IDEAS
    12. repec:eco:journ1:2017-05-4 is not listed on IDEAS

    More about this item

    Keywords

    Economic growth; taxation of corporate income; taxation of personal income;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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