Tax policy and economic growth: does it really matter?
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We study the relationship between per capita GDP, overall tax revenue and tax composition. We find that there is some evidence of a negative and statistically significant relationship between tax revenue and economic growth, while there are no robust relationships between revenue-neutral tax shifts and economic growth. The results hold in different samples of OECD countries for different time periods. We also identify different relationships between the short run and long run. Overall, our results cast doubts on the potential growth enhancing effects of a shift from direct to indirect taxation, with paramount consequences on tax policy.
KeywordsEconomic growth Taxation Tax mix OECD countries
JEL ClassificationE62 H20 P50
We thank Ethan Ilzetzki and seminar participants at the 2015 SIEP conference for useful comments. A special thanks to Jan Ditzen for help with his xtdcee2 Stata command. We also thank Massimo Bordignon, Carlo Cottarelli, Thomas Manfredi, Vito Tanzi, Stanley Winer for interesting suggestions, and Paolo Longo for research assistance in data collection.
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