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A tale of two taxes: State‐dependency of tax policy

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  • Kerim Peren Arin
  • Emin Gahramanov
  • Tolga Omay
  • Xueli Tang
  • Mehmet A. Ulubasoglu

Abstract

In this paper, we build a simple endogenous growth model with labour and corporate taxes to investigate the asymmetric effects of tax policy over the growth trajectory. We employ a newly developed panel smooth transition model to empirically analyse a sample of 19 advanced economies over the 1961–2017 period. We find that both the asymmetric effects and the tax measures used are essential. We also find that the effects of corporate and personal taxes on long‐run growth are non‐linear, while the detrimental effects of personal taxes are empirically larger compared to those of corporate taxes once non‐linearities are controlled for.

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  • Kerim Peren Arin & Emin Gahramanov & Tolga Omay & Xueli Tang & Mehmet A. Ulubasoglu, 2024. "A tale of two taxes: State‐dependency of tax policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 71(1), pages 1-27, February.
    • Handle: RePEc:bla:scotjp:v:71:y:2024:i:1:p:1-27
    DOI: 10.1111/sjpe.12360
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    1. Dennis Bonam & Paul Konietschke, 2020. "Tax multipliers across the business cycle," Working Papers 699, DNB.

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    JEL classification:

    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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