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On the Effects of Taxation on Growth: an Empirical Assessment

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Abstract

Growth models predict that taxation may have permanent effects on per capita real GDP growth. We look at, and test this prediction for 21 OECD countries, over the period 1965-2010. We employ a semi-parametric technique - namely, a Finite Mixture model - to estimate an augmented version of the Barro (1990) model, in order to consider both direct and indirect effects of taxation on capital share parameters. The estimation technique allows to deal with unobserved heterogeneity and to perform a cluster analysis. Our results support the idea that taxes are generally harmful for growth. The coefficient estimates indicate that a cut in the corporate income tax rate by 10 % raises the GDP growth rate by 0.9% while a cut in the personal income tax rate by 10% raises the GDP growth rate by 1%.

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  • Marco Alfò & Lorenzo Carbonari & Giovanni Trovato, 2020. "On the Effects of Taxation on Growth: an Empirical Assessment," CEIS Research Paper 480, Tor Vergata University, CEIS, revised 08 May 2020.
    • Handle: RePEc:rtv:ceisrp:480
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    Cited by:

    1. Andrei Ionut Husman, 2020. "Taxation And Economic Development In The Former Communist Bloc. A Panel Data Approach," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 5(2), pages 83-91, September.
    2. Leisan A. Gafarova, 2025. "Priority Areas for Strengthening the Tax Capacity of Municipalities in Russia," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 11(2), pages 358-380.
    3. Busato, Francesco & Varlese, Monica & Ulloa Severino, Claudia, 2022. "Public debt heterogeneity at country level: an empirical analysis," MPRA Paper 113812, University Library of Munich, Germany.
    4. Kenc, Turalay & Cevik, Emrah Ismail, 2024. "Global corporate tax policy space," Economic Systems, Elsevier, vol. 48(2).
    5. Isubalew Daba Ayana & Wondaferahu Mulugeta Demissie & Atnafu Gebremeskel Sore, 2023. "Effect of government revenue on economic growth of sub-Saharan Africa: Does institutional quality matter?," PLOS ONE, Public Library of Science, vol. 18(11), pages 1-24, November.

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    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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