DP9261 Non-linear Effects of Taxation on Growth
|Author(s):||Nir Jaimovich, Sérgio Rebelo|
|Publication Date:||December 2012|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=9261|
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.