Non-linear Effects of Taxation on Growth

Nir Jaimovich and Sergio Rebelo ()

No 18473, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest, severely hurt their growth performance. In our model, the effects of taxation on growth are highly non-linear. Low or moderate tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.

JEL-codes: H2 O4 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-acc, nep-fdg, nep-pbe and nep-pub
Note: EFG
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Citations: View citations in EconPapers (17)

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Related works:
Working Paper: Non-linear effects of taxation on growth (2013)
Working Paper: Non-linear Effects of Taxation on Growth (2012)
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