Skip to main content

Tax Structure and Growth: Are Some Taxes Better Than Others?

Public Choice volume 107, pages 199–219 (2001)Cite this article

Abstract

Using pooled cross-sectional data from 23 OECD countries, between1965 and 1990, I find evidence that the tax structure affectseconomic growth. Specifically, the proportion of tax revenueraised by taxing personal income has a negative correlation witheconomic growth. This result is robust to a rigorous sensitivityanalysis, where I control for other plausible growth determinantsin a systematic manner. Also, there is some empirical evidencethat tax progressivity, measured in terms of the long-run incomeelasticity of tax revenue, is associated with low economicgrowth.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

References

  • Agell, J., Lindh, T. and Ohlsson, H. (1997). Growth and the public sector: A critical review essay. European Journal of Political Economy 13: 33–52.

    Google Scholar 

  • Alesina, A. and Rodrik, D. (1991). Distributive politics and economic growth. NBER Working Paper No. 3668.

  • Alexander, W.R.J. (1990). Growth: Some combined cross-sectional and time-series evidence from OECD countries. Applied Economics 22: 1197–1204.

    Google Scholar 

  • Atkinson, A.B. (1995). The welfare state and economic performance. National Tax Journal 48: 171–198.

    Google Scholar 

  • Bagliano, F.-C., Brandolini, A. and Dalmazzo, A. (1992). The CEP-OECD data set (1950–1988). Mimeo. London School of Economics.

  • Barro, R.J. (1989). A cross-country study of growth, saving and government. NBER Working Paper No. 2855.

  • Barro, R.J. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics 106: 407–444.

    Google Scholar 

  • Barro, R.J. and Sala-i-Martin, X. (1995). Economic growth. New York: McGraw-Hill.

    Google Scholar 

  • Barth, J.R. and Bradley, M. (1988). The impact of government spending on economic activity. Mimeo. The National Chamber Foundation.

  • Basu, K. (1995). Civil institutions and evolution: Concepts, critique and models. Journal of Development Economics 46: 19–33.

    Google Scholar 

  • Bhalla, S.S. (1997). Freedom and economic growth: A virtuous cycle? In A. Hadenius (Ed.), Democracy's victory and crises, 195–241. Cambridge: Cambridge University Press.

    Google Scholar 

  • Brander, J.A. and Dowrick, S. (1994). The role of fertility and population in economic growth. Journal of Population Economics 7: 1–25.

    Google Scholar 

  • Cashin, P. (1995). Government spending, taxes, and economic growth. IMF Staff Papers 42, No. 2.

    Google Scholar 

  • Cass, D. (1965). Optimum growth in an aggregative model of capital accumulation. Review of Economic Studies 32: 233–240.

    Google Scholar 

  • Castles, F.G. and Dowrick, S. (1990). The impact of government spending levels on mediumterm economic growth in the OECD, 1960–85. Journal of Theoretical Politics 2: 173–203.

    Google Scholar 

  • Daveri, F. and Tabellini, G. (1997). Unemployment, growth and taxation in industrial countries. Discussion Paper No. 1681. CEPR, London.

    Google Scholar 

  • Easterly, W. and Rebelo, S. (1993). Fiscal policy and economic growth: An empirical investigation. Journal of Monetary Economics 32: 417–458.

    Google Scholar 

  • Easterly, W., Kremer, M., Pritchett, L. and Summers, L.H. (1993). Good policy or good luck?: Country growth performance and temporary shocks. Journal of Monetary Economics 32: 459–483.

    Google Scholar 

  • Engen, E.M. and Skinner, J. (1992). Fiscal policy and economic growth. NBER Working Paper No. 4223.

  • Friedman, M. (1977). Nobel Lecture: Inflation and unemployment. Journal of Political Economy 85: 451–471.

    Google Scholar 

  • Grier, K.B. and Tullock, G. (1989). An empirical analysis of cross-national economic growth, 1951–80. Journal of Monetary Economics 24: 259–276.

    Google Scholar 

  • Hansson, P. and Henrekson, M. (1994). A new framework for testing the effect of government spending on growth and productivity. Public Choice 81: 381–401.

    Google Scholar 

  • Jones, L.E., Manuelli, R.E. and Rossi, P.E. (1993). Optimal taxation in models of endogenous growth. Journal of Political Economy 101: 485–517.

    Google Scholar 

  • Katz, C.J., Mahler, V.A. and Franz, M.G. (1983). The impact of taxes on growth and distribution in developed capitalist countries: A cross-national study. The American Political Science Review 77: 871–886.

    Google Scholar 

  • King, R.G. and Rebelo, S.T. (1990). Public policy and economic growth: Developing neoclassical implications. Journal of Political Economy 98: S126-S150.

    Google Scholar 

  • King, R.G. and Rebelo, S.T. (1993). Transitional dynamics and economic growth in the neoclassical model. American Economic Review 83: 908–931.

    Google Scholar 

  • Koester, R.B. and Kormendi, R.C. (1989). Taxation, aggregate activity and economic growth: Cross-country evidence on some supply-side hypotheses. Economic Inquiry 27: 367–386.

    Google Scholar 

  • Koopmans, T. (1965). On the concept of optimal economic growth. In The econometric approach to development planning. Chicago: Rand McNally.

    Google Scholar 

  • Kormendi, R.C. and Meguire, P.G. (1985). Macroeconomic determinants of growth: Crosscountry evidence. Journal of Monetary Economics 16: 141–163.

    Google Scholar 

  • Leamer, E.E. (1983). Let's take the con out of econometrics. American Economic Review 73: 31–43.

    Google Scholar 

  • Levine, R. and Renelt, D. (1992). A sensitive analysis of cross-country regressions. American Economic Review 82: 942–963.

    Google Scholar 

  • Levine, R. and Zervos, S.J. (1993).What have we learned about policy and growth from crosscountry regressions? American Economic Review 83, Papers and Proceedings: 426–430.

    Google Scholar 

  • Lin, S.A.Y. (1994). Government spending and economic growth. Applied Economics 26: 83–94.

    Google Scholar 

  • Mankiw, N.G., Romer, D. and Weil, D.N. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics 107: 407–437.

    Google Scholar 

  • Mendoza, E.G., Razin, A. and Tesar, L.L. (1994). Effective tax rates in macroeconomics crosscountry estimates of tax rates on factor incomes and consumption. Journal of Monetary Economics 34: 297–323.

    Google Scholar 

  • National accounts. Main aggregates, Volume 1, 1960–1993. Paris: OECD.

  • Plosser, C.I. (1992). The search for growth. In Policies for long-run economic growth, 57–86. Kansas City: The Federal Reserve Bank of Kansas City.

    Google Scholar 

  • Quah, D. (1993). Galton's fallacy and tests of the convergence hypothesis. Scandinavian Journal of Economics 95: 427–443.

    Google Scholar 

  • Ram, R. (1986). Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review 76: 191–203.

    Google Scholar 

  • Rebelo, S. (1991). Long-run policy analysis and long-run growth. Journal of Political Economy 99: 500–521.

    Google Scholar 

  • Revenue statistics of OECD member countries, 1965–1993. Paris: OECD.

  • Sala-i-Martin, X.X. (1997). I just ran four million regressions. Mimeo. Columbia University.

  • Snowbarger, M. and Kirk, J. (1975). A cross-sectional model of built-in flexibility, 1954–1969. National Tax Journal 26: 241–249.

    Google Scholar 

  • Stockman, A.C. (1981). Anticipated inflation and the capital stock in a cash-in-advance economy. Journal of Monetary Economics 8: 387–393.

    Google Scholar 

  • Stokey, N.L. and Rebelo, S. (1995). Growth effects of flat-rate taxes. Journal of Political Economy 103: 519–550.

    Google Scholar 

  • Torstensson, J. (1996). Determinants of intra-industry trade: A sensitivity analysis. Oxford Bulletin of Economics and Statistics 58: 507–524.

    Google Scholar 

  • Volkerink, B. and de Haan, J. (1999). Political and institutional determinants of the tax mix: An empirical investigation for OECD countries. SOM Research Report 99E05, University of Groningen.

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Uppsala University, S-751 20, Uppsala, Sweden

    Frida Widmalm

Authors
  1. Frida Widmalm
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Widmalm, F. Tax Structure and Growth: Are Some Taxes Better Than Others?. Public Choice 107, 199–219 (2001). https://doi.org/10.1023/A:1010340017288

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1023/A:1010340017288

Keywords

  • Negative Correlation
  • Public Finance
  • OECD Country
  • Personal Income