Taxes and Economic Growth in OECD Countries: A Meta-Analysis

Nazila Alinaghi () and W. Reed ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: A major difficulty with synthesizing estimates on taxes and economic growth is that they measure different things. This follows because studies differ in the government budget constraints implied by their regression specifications. To address this problem, we use a taxonomy from Gemmell, Kneller, and Sanz (2009) that predicts the growth effects from various tax-spending-deficit combinations. We apply this taxonomy to 641 estimates from 42 studies of tax effects in OECD countries, categorizing them based on the tax-spending-deficit combinations implied by their regression specifications. We then apply meta-analysis to this sample of estimates to calculate the effect of the following, revenue-neutral tax policy: a onepercentage point decrease in distortionary taxes as part of a negative-growth fiscal policy, accompanied by a one-percentage point increase in non-distortionary taxes as part of a positivegrowth fiscal policy. Our headline result is that the associated 95% confidence interval implies an average increase in annual economic growth between 0.05 to 0.25 percent a year. This compares to an average annual growth rate of approximately 2.50 percent for the countries in our study. Another result from our analysis is that we find evidence of publication bias favoring negative estimates in the tax and growth literature. On the other hand, our results do not find any evidence to support the conventional wisdom that taxes on labor and capital are more distortionary than other types of taxes.

Keywords: Meta-analysis; Taxes; Economic growth; OECD (search for similar items in EconPapers)
JEL-codes: H2 H5 H6 O47 O50 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2020-01-01
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Taxes and Economic Growth in OECD Countries: A Meta-analysis (2021)
Working Paper: Taxes and Economic Growth in OECD Countries: A Meta-Analysis (2020)
Working Paper: Taxes and Economic Growth in OECD Countries: A Meta-Analysis (2018)
Working Paper: Taxes and Economic Growth in OECD Countries: A Meta-Analysis (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:20/03

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