Do Taxes Matter for Long-Run Growth?: Harberger's Superneutrality Conjecture

42 Pages Posted: 15 Feb 2006

See all articles by Enrique G. Mendoza

Enrique G. Mendoza

National Bureau of Economic Research (NBER); University of Pennsylvania

Patrick K. Asea

affiliation not provided to SSRN

Date Written: August 1995

Abstract

Harberger`s superneutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. The theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.

JEL Classification: E6, E62, 04, 05

Suggested Citation

Mendoza, Enrique G. and Asea, Patrick K., Do Taxes Matter for Long-Run Growth?: Harberger's Superneutrality Conjecture (August 1995). IMF Working Paper No. 95/79, Available at SSRN: https://ssrn.com/abstract=883227

Enrique G. Mendoza (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

HOME PAGE: http://www.sas.upenn.edu/~egme/index.html

Patrick K. Asea

affiliation not provided to SSRN

No Address Available

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