Non-Linear Effects of Taxation on Growth
Posted: 1 Feb 2013
Date Written: December 2012
We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.
Keywords: growth, taxes
JEL Classification: H2, O4
Suggested Citation: Suggested Citation