Tax Progressivity and Output: Evidence from OECD countries

Joao Jalles and Georgios Karras

No 2023/0293, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: Compared to the economic effects of tax rates, those of tax progressivity have been much less studied. In this paper, we estimate the output effects of changes in tax progressivity using a data set of 33 OECD economies since 1980. Our results show that tax progressivity affects the economy in a way that is broadly consistent with the predictions of a standard neoclassical growth model. In particular, increasing tax progressivity reduces the economy’s growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust. Our findings also emphasize the importance of including both the tax rate and tax progressivity in the estimation: omitting either can lead to biased results.

Keywords: Tax progressivity; Tax rates; Economic Growth; Panel Data; Local Projections (search for similar items in EconPapers)
JEL-codes: E62 H20 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp02932023

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