Fiscal Policy Impacts on Growth: An OECD Cross-Country Study with an Emphasis on Human Capital Accumulation

43 Pages Posted: 18 Jan 2012

See all articles by Diego d'Andria

Diego d'Andria

Joint Research Center of the European Commission

Giuseppe Mastromatteo

Catholic University of the Sacred Heart of Milan

Date Written: January 18, 2012

Abstract

A growing body of literature tests the effects of different tax structures on long-run economic growth. We argue that these tests do not properly account for endogeneity between supposedly independent variables. We run several cross-country ordinary least squares tests with special attention to human capital, and show how education choice behaviors are affected by different tax mixes. The results obtained by microeconomic theory are validated, and they imply that accumulation rates of human capital cannot be deemed independent from savings taxation.

Our results also show that more progressive labor taxation does not appear to be correlated with lower investments in education, contrary to what one would expect from microeconomic theory. We discuss possible implications, and suggest that a likely explanation lies in the outcome of redistribution policies reducing credit constraints of poorer households, thus allowing them easier access to education and, consequently, higher aggregate human capital accumulation.

Keywords: tax mix, human capital, growth, cross-country

JEL Classification: H21, E24, O4, C23

Suggested Citation

d'Andria, Diego and Mastromatteo, Giuseppe, Fiscal Policy Impacts on Growth: An OECD Cross-Country Study with an Emphasis on Human Capital Accumulation (January 18, 2012). CEIS Working Paper No. 217, Available at SSRN: https://ssrn.com/abstract=1987616 or http://dx.doi.org/10.2139/ssrn.1987616

Diego D'Andria (Contact Author)

Joint Research Center of the European Commission ( email )

Via E. Fermi 2749
1049
Belgium

Giuseppe Mastromatteo

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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