The Impact of Taxation on Growth: A Quantitative Analysis on a Panel Data of 24 OECD Countries

Abstract

Over the last decades tax rates have grown substantially and taxation systems have become more complex than ever. With this scenario in mind, this thesis aims to assess the impact of taxation on growth, through a quantitative analysis on a panel data of 24 developed economies. The results obtained show that an increase in the total tax burden by 1% is likely to slow down growth on average by the same amount over a period of 5 years. Furthermore, it appears that among single taxes, social security contributions and taxes on consumption are the most harmful for growth, while taxes on property are the least harmful. Additional tests have proven that small countries are more sensitive to tax changes than large ones. Finally, in the last chapter I identify a possible optimal tax structure capable of maximizing growth while keeping constant or even reducing income inequality (inclusive growth).

Keywords: Tax, Taxes, Taxation, OECD, Growth, Inclusive Growth, Globalisation, Competition, Regression Analysis, Optimal Tax Structure, Tax Competition, Market Potential, Agglomeration Forces, New Economic Geography, Inequality, Income Distribution, Wealth Distribution

JEL Classification: E01, E02, E62, F4, F60