The article explores the relationship between top marginal tax rates on personal income and economic growth. Using a data set of consistently measured top marginal tax rates for a panel of 18 OECD countries over the period 1965–2009, this article finds evidence in favour of a quadratic top tax–growth relationship. This represents the first reported evidence of a nonmonotonic significant relationship between top marginal income tax rates and economic growth. The point estimates of the regressions suggest that the marginal effect of higher top tax rates becomes negative above a growth-maximizing tax rate in the order of 60%. As top marginal tax rates observed after 1980 are below the estimated growth-maximizing level in most of the countries considered, a positive linear relationship between top marginal tax rates and GDP growth is found over the sub-period 1980–2009. Overall, results show that raising top marginal tax rates which are below their growth maximizing has the largest positive impact on growth when the related additional revenues are used to finance productive public expenditure, reduce budget deficits or reduce some other form of distortionary taxation.

Milasi, S., Waldmann, R. (2018). Top marginal taxation and economic growth. APPLIED ECONOMICS, 50(19), 2156-2170 [10.1080/00036846.2017.1392001].

Top marginal taxation and economic growth

Milasi S.;Waldmann Robert
2018-01-01

Abstract

The article explores the relationship between top marginal tax rates on personal income and economic growth. Using a data set of consistently measured top marginal tax rates for a panel of 18 OECD countries over the period 1965–2009, this article finds evidence in favour of a quadratic top tax–growth relationship. This represents the first reported evidence of a nonmonotonic significant relationship between top marginal income tax rates and economic growth. The point estimates of the regressions suggest that the marginal effect of higher top tax rates becomes negative above a growth-maximizing tax rate in the order of 60%. As top marginal tax rates observed after 1980 are below the estimated growth-maximizing level in most of the countries considered, a positive linear relationship between top marginal tax rates and GDP growth is found over the sub-period 1980–2009. Overall, results show that raising top marginal tax rates which are below their growth maximizing has the largest positive impact on growth when the related additional revenues are used to finance productive public expenditure, reduce budget deficits or reduce some other form of distortionary taxation.
2018
Pubblicato
Rilevanza internazionale
Articolo
Esperti anonimi
Settore SECS-P/01 - ECONOMIA POLITICA
English
Con Impact Factor ISI
marginal taxation, growth
https://www.tandfonline.com/doi/full/10.1080/00036846.2017.1392001
Milasi, S., Waldmann, R. (2018). Top marginal taxation and economic growth. APPLIED ECONOMICS, 50(19), 2156-2170 [10.1080/00036846.2017.1392001].
Milasi, S; Waldmann, R
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2108/203267
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