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Discussion Paper Details

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Title: On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture

Author(s): Patrick Asea, Enrique G Mendoza and Gian Maria Milesi-Ferretti

Publication Date: April 1996

Keyword(s): Endogenous Growth, Private Investment, Tax Rate Estimates and Tax Structure

Programme Area(s): International Macroeconomics

Abstract: Harberger?s superneutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice tax policy is ineffective as an instrument to promote growth. This paper provides evidence to support this view by examining the predictions of endogenous growth models driven by human capital accumulation. The empirical work is based on numerical simulations and cross-country regressions, using a new methodology for constructing aggregate effective tax rates. Results show significant investment effects from taxes that are consistent with negligible growth effects. The results are robust to the introduction of other growth determinants.

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Bibliographic Reference

Asea, P, Mendoza, E and Milesi-Ferretti, G. 1996. 'On the Ineffectiveness of Tax Policy in Altering Long- Run Growth: Harberger's Superneutrality Conjecture'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1378