OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Do Tax Structures Affect Aggregate Economic Growth?
Empirical Evidence from a Panel of OECD Countries
This paper examines the relationship between tax structures and economic growth by entering indicators of
the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the
accumulation of physical and human capital are accounted for. The results of the analysis suggest that
income taxes are generally associated with lower economic growth than taxes on consumption and
property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect
to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable
property, seem to be the most growth-friendly, followed by consumption taxes and then by personal
income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita. These
findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue
base towards recurrent property and consumption taxes and away from income taxes, especially corporate
taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes
and growth. All of the results are robust to a number of different specifications, including controlling for
other determinants of economic growth and instrumenting tax indicators.
Keywords: growth, fiscal policy
JEL:
O47: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence;
E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy;
H21: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Efficiency; Optimal Taxation
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