On the Effects of Taxation on Growth: an Empirical Assessment

Marco Alfò (), Lorenzo Carbonari and Giovanni Trovato ()
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Marco Alfò: Università di Roma La Sapienza
Giovanni Trovato: CEIS & DEF, University of Rome "Tor Vergata", http://www.ceistorvergata.it

No 480, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: Growth models predict that taxation may have permanent effects on per capita real GDP growth. We look at, and test this prediction for 21 OECD countries, over the period 1965-2010. We employ a semi-parametric technique - namely, a Finite Mixture model - to estimate an augmented version of the Barro (1990) model, in order to consider both direct and indirect effects of taxation on capital share parameters. The estimation technique allows to deal with unobserved heterogeneity and to perform a cluster analysis. Our results support the idea that taxes are generally harmful for growth. The coefficient estimates indicate that a cut in the corporate income tax rate by 10 % raises the GDP growth rate by 0.9% while a cut in the personal income tax rate by 10% raises the GDP growth rate by 1%.

Keywords: Economic growth; taxation; classification. (search for similar items in EconPapers)
JEL-codes: H30 O30 O40 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2020-05-08, Revised 2020-05-08
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: On the effects of taxation on growth: an empirical assessment (2023)
Working Paper: On the Effects of Taxation on Growth: an Empirical Assessment (2022)
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