Discussion Paper Details

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Title: Non-linear Effects of Taxation on Growth

Author(s): Nir Jaimovich and Sérgio Rebelo

Publication Date: December 2012

Keyword(s): growth and taxes

Programme Area(s): International Macroeconomics

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.

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Bibliographic Reference

Jaimovich, N and Rebelo, S. 2012. 'Non-linear Effects of Taxation on Growth'. London, Centre for Economic Policy Research.