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The Nexus among Domestic Investment, Taxation, and Economic Growth in Germany: Cointegration and Vector Error Correction Model Analysis

Author

Listed:
  • Bakari, Sayef
  • Ahmadi, Ali
  • Tiba, Sofien

Abstract

The development of endogenous growth theory has opened an avenue through which the effects of taxation on economic growth can be explored. Indeed, several empirical studies have examined the effect of many criteria, typically measured as domestic investment, on economic growth. This study reviews the theoretical and empirical evidence to assess whether a consensus arises as to how taxation affects the rate of economic growth. It is shown that the theoretical models isolate several channels through which taxation can affect growth and that these effects may be very. Our empirical facts record that both taxation of corporate and domestic investment positively influence economic growth, as well as, economic growth can affect taxation.

Suggested Citation

  • Bakari, Sayef & Ahmadi, Ali & Tiba, Sofien, 2019. "The Nexus among Domestic Investment, Taxation, and Economic Growth in Germany: Cointegration and Vector Error Correction Model Analysis," MPRA Paper 96655, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:96655
    as

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    File URL: https://mpra.ub.uni-muenchen.de/96655/1/MPRA_paper_96655.pdf
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    References listed on IDEAS

    as
    1. Folster, Stefan & Henrekson, Magnus, 2001. "Growth effects of government expenditure and taxation in rich countries," European Economic Review, Elsevier, vol. 45(8), pages 1501-1520, August.
    2. repec:seg:012016:v:4:y:2019:i:1:p:31-45 is not listed on IDEAS
    3. Arnold Zellner & Jacques Kibambe Ngoie, 2015. "Evaluation of the Effects of Reduced Personal and Corporate Tax Rates on the Growth Rates of the U.S. Economy," Econometric Reviews, Taylor & Francis Journals, vol. 34(1-2), pages 56-81, February.
    4. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    5. William G. Gale & Aaron Krupkin & Kim Rueben, 2015. "The Relationship Between Taxes and Growth at the State Level: New Evidence," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(4), pages 919-942, December.
    6. repec:nax:conyad:v:62:y:2017:i:3:p:1041-1057 is not listed on IDEAS
    7. Ojede, Andrew & Yamarik, Steven, 2012. "Tax policy and state economic growth: The long-run and short-run of it," Economics Letters, Elsevier, vol. 116(2), pages 161-165.
    8. Andreas Bergh & Martin Karlsson, 2010. "Government size and growth: Accounting for economic freedom and globalization," Public Choice, Springer, vol. 142(1), pages 195-213, January.
    9. Ferede, Ergete & Dahlby, Bev, 2012. "The Impact of Tax Cuts on Economic Growth: Evidence From the Canadian Provinces," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(3), pages 563-594, September.
    10. Sayef Bakaria, 2019. "If France Continues This Strategy, Taxes Will Destroy Domestic Investment And Economic Growth," Journal of Smart Economic Growth, , vol. 4(1), pages 31-45, Mars.
    11. Hlalefang Khobai & Sanderson Abel & Pierre Le Roux, 2016. "Co-integration between Electricity Supply and Economic Growth in South Africa," International Journal of Energy Economics and Policy, Econjournals, vol. 6(3), pages 637-645.
    12. Romero-Ávila, Diego & Strauch, Rolf, 2008. "Public finances and long-term growth in Europe: Evidence from a panel data analysis," European Journal of Political Economy, Elsevier, vol. 24(1), pages 172-191, March.
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    More about this item

    Keywords

    Taxation; Domestic Investment; Economic Growth; Germany; VECM;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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