Taxation and Output Growth: Evidence from African Countries
There is considerable debate over the appropriate role for tax policy in developing economies. In one view, tax hikes reduce deficits and ease budgetary pressures, thereby encouraging long-term growth. An alternative view emphasizes the distortionary effects associated with increased taxation and the positive benefits of a carefully designed tax system. This paper tests these propositions by measuring the impact of government taxation and expenditure on aggregate output growth. A theoretical model is derived which shows that the impact of tax distortions on output growth is usually negative. The theoretical model is tested using a pooled cross-section time-series data set for 31 sub-Saharan African countries during 1965-73 and 1974-82. The regressions imply that the positive benefits of government investment during 1965-73 outweighed the distortionary effects of taxes necessary to finance them. By 1974-82, however, the marginal productivity of government investment had fallen; tax-financed public investment was predicted to have reduced output growth. The empirical results also imply that a revenue neutral shift from the import, corporate, and personal tax to a sales/excise (or consumption) tax will encourage output growth.
|Date of creation:||Aug 1987|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fullerton, Don, et al, 1981. "Corporate Tax Integration in the United States: A General Equilibrium Approach," American Economic Review, American Economic Association, vol. 71(4), pages 677-91, September.
- James Henderson, 1982. "Optimal Factor Allocations for Thirteen Countries," NBER Chapters, in: Trade and Employment in Developing Countries, Volume 2: Factor Supply and Substitution, pages 1-82 National Bureau of Economic Research, Inc.
- Krueger, Anne O., 1984. "Trade policies in developing countries," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 11, pages 519-569 Elsevier.
- Taylor, Lance & Black, Stephen L., 1974. "Practical general equilibrium estimation of resource pulls under trade liberalization," Journal of International Economics, Elsevier, vol. 4(1), pages 37-58, April.
- Bolnick, Bruce R., 1978. "Demographic effects on tax ratios in developing countries," Journal of Development Economics, Elsevier, vol. 5(3), pages 283-306, September.
- Auerbach, Alan J & Kotlikoff, Laurence J & Skinner, Jonathan, 1983.
"The Efficiency Gains from Dynamic Tax Reform,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 81-100, February.
- Wheeler, David, 1984. "Sources of stagnation in sub-Saharan Africa," World Development, Elsevier, vol. 12(1), pages 1-23, January.
- Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
- Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
- Seidman, Laurence S, 1984. "Conversion to a Consumption Tax: The Transition in a Life-Cycle Growth Model," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 247-67, April.
- Sherman Robinson, 1971. "Sources of Growth in Less Developed Countries: A Cross-Section Study," The Quarterly Journal of Economics, Oxford University Press, vol. 85(3), pages 391-408.
- Stewart, Douglas B & Venieris, Yiannis P, 1985. "Sociopolitical Instability and the Behavior of Savings in Less-Developed Countries," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 557-63, November.
- Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
- Brent, Robert J., 1986. "Lagged reactions in short-run estimates of tax shifting of company income and sales taxes in Kenya," Journal of Development Economics, Elsevier, vol. 20(1), pages 15-32.
- Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
- David, Paul A., 1977. "Invention and accumulation in america's economic growth: A nineteenth-century parable," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 6(1), pages 179-228, January.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:2335. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.