Nonlinear effects of taxation on growth

Nir Jaimovich, Sergio Rebelo

Research output: Contribution to journalArticle

29 Scopus citations

Abstract

We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest severely hurt their growth performance. In our model, the effects of taxation on growth are highly nonlinear. Low tax rates have a very small impact on long-run growth rates. But as tax rates rise, their negative impact on growth rises dramatically. The median voter chooses tax rates that have a small impact on growth prospects, making the relation between tax rates and economic growth difficult to measure empirically.

Original languageEnglish (US)
Pages (from-to)265-291
Number of pages27
JournalJournal of Political Economy
Volume125
Issue number1
DOIs
StatePublished - Feb 2017

ASJC Scopus subject areas

  • Economics and Econometrics

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