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The Non-linear Effect of Corporate Taxes on Economic Growth

Author

Listed:
  • Ján HUŇADY

    (Matej Bel University in Banská Bystrica, Slovakia)

  • Marta ORVISKÁ

    (Matej Bel University in Banská Bystrica, Slovakia)

Abstract

The paper deals with the problem of taxation and its potential impact on economic growth and presents some new empirical insights into this topic. The main aim of the paper is to verify an assumed nonlinear impact of corporate tax rates on economic growth. Based on the theory of public finance and taxation, we hypothesize that at relatively low tax rates it is possible that the impact of taxation on economic growth become slightly positive. On the other hand when the tax rates are higher a negative impact of taxation on economic growth could be expected. Despite the fact that the most of the existing studies find a negative linear relationship between these variables, we can also find strong support for a non-linear relationship from several theoretical models as well as some empirical studies. Based on panel data fixed-effects econometric models, we, as well, find empirical evidence for a non-linear relationship between nominal and effective corporate tax rates and economic growth. Our data consists of annual observations for the period 1999 to 2011 for EU Member States. Based on the results, we also estimated the optimal level of the corporate tax rate in terms of maximizing economic growth in the average of the EU countries.

Suggested Citation

  • Ján HUŇADY & Marta ORVISKÁ, 2015. "The Non-linear Effect of Corporate Taxes on Economic Growth," Timisoara Journal of Economics and Business, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 8(1s), pages 14-31, February.
    • Handle: RePEc:wun:timjeb:tjeb:v08:y2015:i01s:a02
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    References listed on IDEAS

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    Cited by:

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    2. Maganya Mnaku Honest, 2020. "Tax revenue and economic growth in developing country: an autoregressive distribution lags approach," Central European Economic Journal, Sciendo, vol. 7(54), pages 205-217, January.

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    More about this item

    Keywords

    taxation; economic growth; corporate tax; effective tax rate.;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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