The Sinful Side of Taxation: Is it Possible to Satisfy the Government Hunger for Revenues While Promoting Economic Growth?

Abstract

This study evaluates both linear and non-linear relationships between individual taxes’ revenues and real per capita growth. The analysis is carried out for all the OECD countries over the period 1980-2015, using panel data techniques to assess the short –and long– run effects of taxation on economic growth. With the exception of taxes on individual income, we fnd evidences of non-linear relationships between other sources of taxation and economic growth, which consequently supports the existence of the optimisation in GDP terms of threshold values between economic growth and tax components’ revenues. In summary, the results provide a certain degree of support regarding the application of a policy focused on raising certain taxes, expressed as a percentage of GDP, without harming economic growth.