Non-Linear Effects of Taxation on Growth

Posted: 1 Feb 2013

See all articles by Nir Jaimovich

Nir Jaimovich

University of Zurich

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: December 2012

Abstract

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

Jaimovich, Nir and Tavares Rebelo, Sergio, Non-Linear Effects of Taxation on Growth (December 2012). CEPR Discussion Paper No. DP9261. Available at SSRN: https://ssrn.com/abstract=2210231

Nir Jaimovich (Contact Author)

University of Zurich ( email )

Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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