1887

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.

English, French

Taxation and Economic Growth

This paper investigates the design of tax structures to promote economic growth. It suggests a “tax and growth” ranking of taxes, confirming results from earlier literature but providing a more detailed disaggregation of taxes. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. Recurrent taxes on immovable property appear to have the least impact. A revenue neutral growth-oriented tax reform would, therefore, be to shift part of the revenue base from income taxes to less distortive taxes such as recurrent taxes on immovable property or consumption. The paper breaks new ground by using data on industrial sectors and individual firms to show how re-designing taxation within each of the broad tax categories could in some cases ensure sizeable efficiency gains. For example, reduced rates of corporate tax for small firms do not seem to enhance growth, and high top marginal rates of personal income tax can reduce productivity growth by reducing entrepreneurial activity. While the paper focuses on how taxes affect growth, it recognises that practical tax reform requires a balance between the aims of efficiency, equity, simplicity and revenue raising.

English

Keywords: tax policy, taxation, investment, tax design, productivity, economic growth
JEL: H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies including sales and value-added (VAT); O40: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Economic Growth and Aggregate Productivity: General; O43: Economic Development, Innovation, Technological Change, and Growth / Economic Growth and Aggregate Productivity / Institutions and Growth; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes; H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies; C33: Mathematical and Quantitative Methods / Multiple or Simultaneous Equation Models; Multiple Variables / Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
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