Tax structure and growth: Are some taxes better than others?

 

Frida Widmalm

 

Public Choice, Vol 107 (2001) 199-219

 

Using pooled cross-sectional data from 23 OECD countries, between 1965 and 1990, I find evidence that the tax structure affects economic growth. Specifically, the proportion of tax revenue raised by taxing personal income has a negative correlation with economic growth. This result is robust to a rigorous sensitivity analysis, where I control for other plausible growth determinants in a systematic manner. Also, there is some empirical evidence that tax progressivity, measured in terms of the long-run income elasticity of tax revenue, is associated with low economic growth.