Tax structure and macroeconomic performance

Giampaolo Arachi (), Valeria Bucci and Alessandra Casarico

No 74, Working Papers from "Carlo F. Dondena" Centre for Research on Social Dynamics (DONDENA), Università Commerciale Luigi Bocconi

Abstract: This paper reassesses the relationship between tax structure and long run income, using as indicators of tax structure both a new series of implicit tax rates based on Mendoza et al. (1997) and tax ratios, adopting a dynamic panel estimation strategy, and explicitly accounting for cross-section dependence in the panel. When implicit tax rates are used, the paper shows, the link between tax structure and long run income per capita is not robust to the adoption of different assumptions on observable and unobservable heterogeneity across countries. When tax ratios are used, there is some evidence of a negative impact of labour taxation on long run income, but this result is shown to capture non-fiscal effects coming from the evolution of the labour share. Turning to the short run, the research presented here finds strong evidence of a positive effect on per capita income of a tax shift from labour and capital taxation towards consumption taxation, which provides support for fiscal devaluations.

Keywords: long run income; tax structure; fiscal devaluation; cross-section dependence (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-04
New Economics Papers: this item is included in nep-acc, nep-mac, nep-pbe and nep-pub
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Citations: View citations in EconPapers (14)

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Journal Article: Tax structure and macroeconomic performance (2015)
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