Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture

Patrick Asea, Gian Maria Milesi-Ferretti () and Enrique Mendoza

No 1995/079, IMF Working Papers from International Monetary Fund

Abstract: Harberger’s superneutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. The theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.

Keywords: WP; physical capital; time series; investment rate; growth effect; revenue data; consumption tax; factor income; rate of growth; labor income; growth theory; income tax tax revenue; income tax revenue data; revenue statistics; Income tax systems; Income and capital gains taxes; Consumption taxes; Human capital; Europe (search for similar items in EconPapers)
Pages: 42
Date: 1995-08-01
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Citations: View citations in EconPapers (8)

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Working Paper: Do taxes matter for long-run growth?: Harberger's superneutrality conjecture (1995)
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