Composition of taxes and growth: Evidence from OECD panel data

Weijie Luo

No 2019-43, Economics Discussion Papers from Kiel Institute for the World Economy

Abstract: This paper analyzes the impact of the composition of taxes on economic growth using a panel of OECD countries. In contrast to Kneller et al. (Fiscal policy and growth: evidence from OECD countries, 1999), over 1980-2005 distortionary taxation did not reduce growth, while an increase in non-distortionary taxation had a negative association with growth. When the data are extended to the great recession and its recovery period (1980−2015), distortionary taxation significantly reduces growth as originally conjectured, but the negative effect of non-distortionary taxation survives. This paper argues that distortions from expenditure taxes in recent years can be accounted for by a combination of an exploding increased debt/GDP and globalization.

Keywords: distortionary taxation; non-distortionary taxation; growth (search for similar items in EconPapers)
JEL-codes: E62 H20 O40 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mac and nep-pub
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201943

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