The growth effects of tax rates in the OECD

Gemmell, Norman; Kneller, Richard; Sanz, Ismael

Abstract

This paper explores the merits of macro- and micro-based tax rate measures within an open economy ‘fiscal policy and growth’ model. Using annual data for 15 OECD countries we find statistically small, non-robust long-run growth effects of macro-based average tax rates on capital income and consumption, but some evidence for average labor income tax effects. Changes in ‘micro’ marginal income tax rates at both the personal and corporate levels yield statistically robust GDP responses of modest size. Both domestic and foreign corporate taxes appear relevant. In general, tax effects on GDP operate largely via factor productivity rather than factor accumulation.

Citation

Gemmell, N., Kneller, R., & Sanz, I. (2014). The growth effects of tax rates in the OECD. Canadian Journal of Economics / Revue Canadienne d'Économique, 47(4), https://doi.org/10.1111/caje.12105

• Journal Article Type: Article
• Publication Date: Mar 3, 2014
• Deposit Date: Jul 29, 2015
• Publicly Available Date: Sep 8, 2015
• Journal: Canadian Journal of Economics
• Print ISSN: 0008-4085
• Electronic ISSN: 1540-5982
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 47
• Issue: 4
• DOI: https://doi.org/10.1111/caje.12105
• Keywords: Marginal tax rates, Average tax rates, Personal tax, Corporate tax, GDP growth
• Public URL: https://nottingham-repository.worktribe.com/output/725899
• Publisher URL: http://onlinelibrary.wiley.com/doi/10.1111/caje.12105/abstract
• Additional Information: This is the peer reviewed version of the following article: Gemmell, N., R. Kneller and I. Sanz (2014) The growth effects of tax rates in the OECD, Canadian Journal of Economics 47, 1217-1255, which has been published in final form at: http://onlinelibrary.wiley.com/doi/10.1111/caje.12105/abstract. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.