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Taxes and Economic Growth in OECD Countries: A Meta-Analysis

Nazila Alinaghi and W. Reed ()

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper uses meta-analysis to evaluate the results of 42 studies and 641 individual estimates of the effect of taxes on economic growth in OECD countries. Our analysis addresses a number of difficult coding issues such as: implications of the government budget constraint for interpretations of tax effects; units of measurement for economic growth rates and tax rates; implications of equation specifications that measure short-run, medium-run, and long-run effects; length of time period (annual data versus multi-year periods); and other factors. Our main findings are: Estimates in the literature are characterized by significant (negative) publication bias. After controlling for publication bias, we find that tax policies predicted by growth theory to be growth-retarding, such as the use of distortionary taxes to fund unproductive expenditures, are significantly associated with lower economic growth. Tax polices predicted to be growth-enhancing, such as the use of non-distortionary taxes to fund productive expenditures, are significantly associated with higher economic growth. The estimated differences in these policies indicate that there is scope for tax policy to have a meaningful impact on economic growth. Finally, we find weak evidence that taxes on labour are particularly growth-inhibiting, while the evidence for other types of taxes is mixed.

Keywords: Meta-analysis; taxes; economic growth; OECD (search for similar items in EconPapers)
JEL-codes: H2 H5 H6 O47 O50 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pub
Date: 2018-09-01
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http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1809.pdf (application/pdf)

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Working Paper: Taxes and Economic Growth in OECD Countries: A Meta-Analysis (2016) Downloads
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