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Taxation and economic growth

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  • Gareth Myles

    (Institute for Fiscal Studies and University of Exeter)

Abstract

The development of endogenous growth theory has opened an avenue through which the effects of taxation on economic growth can be explored. Explicit modelling of the individual decisions that contribute to growth allows the analysis of tax incidence and the prediction of growth effects. This paper reviews the theoretical and empirical evidence to assess whether a consensus arises as to how taxation affects the rate of economic growth. It is shown that the theoretical models isolate a number of channels through which taxation can affect growth and that these effects may be very substantial. Although empirical tests of the growth effect face unresolved difficulties, the empirical evidence points very strongly to the conclusion that the tax effect is very weak.

Suggested Citation

  • Gareth Myles, 2000. "Taxation and economic growth," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 141-168, March.
    • Handle: RePEc:ifs:fistud:v:21:y:2000:i:1:p:141-168
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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