On the effects of taxation on growth: an empirical assessment

Marco Alfò, Lorenzo Carbonari and Giovanni Trovato

Macroeconomic Dynamics, 2023, vol. 27, issue 5, 1289-1318

Abstract: We study the effects of taxation on the growth rate of the real per capita GDP in a sample of 21 OECD countries, over the period 1965–2010. To do this, we estimate a version of the model proposed by Mankiw, Romer and Weil [(1992) Quarterly Journal of Economics 107, 407–437.] augmented to consider both direct and indirect effects of taxation on investment share parameters. We employ a semi-parametric technique—namely, a Finite Mixture Model—which combines features from mixed effect models for panel data and cluster analysis methods to account for country-specific unobserved heterogeneity. Our results suggest that taxes have a negative impact on growth: in the baseline model, the coefficient estimates indicate that a 10% cut in personal income tax rate (respectively corporate income tax rate) may raise the GDP growth rate by 0.6% (respectively 0.3%).

Date: 2023
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Working Paper: On the Effects of Taxation on Growth: an Empirical Assessment (2022)
Working Paper: On the Effects of Taxation on Growth: an Empirical Assessment (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:27:y:2023:i:5:p:1289-1318_5

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