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The impact of tax structure on investment: an empirical assessment for OECD countries

José Alves
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José Alves: ISEG/UL - Universidade de Lisboa, Department of Economics, Lisboa, Portugal ; REM - Research in Economics and Mathematics, UECE - Research Unit on Complexity and Economics (UECE is supported by FCT - Fundação para a Ciência e a Tecnologia, Portugal), Lisboa, Portugal

Public Sector Economics, 2019, vol. 43, issue 3, 291-309

Abstract: Does taxation structure have an impact on investment dynamics? In our paper we evaluate the share of tax revenues in GDP and investment outcomes, making use of gross fixed capital formation as a proxy for investment. This empirical analysis is carried out for all OECD countries, during the period of 1980-2015, to assess the tax system composition effects in both the short and the long-run. Resorting to panel data econometric techniques, the paper also aims to find optimal tax-investment threshold values. Our results lead us to conclude that there is a maximising effect of income taxation on investment growth when revenues from this tax source are about 10.7%. Furthermore, we find that revenues from social security contributions are detrimental to growth, in both the short and the long-run, while tax revenues from firms and consumption are only detrimental in the short-run.

Keywords: investment growth; tax systems; fiscal policy; optimal taxation (search for similar items in EconPapers)
JEL-codes: D25 E62 H21 O47 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:ipf:psejou:v:43:y:2019:i:3:p:291-309