Taxation, Aggregate Activity and Economic Growth: Further Cross-country Evidence on Some Supply-Side Hypotheses

Charles B Garrison and Feng-Yao Lee

Economic Inquiry, 1992, vol. 30, issue 1, 172-76

Abstract: This paper investigates the effect of marginal tax rates on the level of economic activity. Data from sixty-three countries for the period 1970-84 provide support for Reinhard B. Koester and Roger C. Kormendi's (1989) method of estimating marginal tax rates for individual countries. However, their conclusion that increases in marginal tax rates have negative effects on the level of economic activity is not robust when the authors extend the time period from 1970-79 to 1970-84. Further, even for Koester and Kormendi's own data set, the negative relation does not hold when the sample is disaggregated into industrial countries and low-income countries. Copyright 1992 by Oxford University Press.

Date: 1992
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