Non-linear Effects of Taxation on Growth
NBER Working Paper No. 18473
We study a model in which the effects of taxation on growth are highly non-linear. Marginal increases in tax rates have a small growth impact when tax rates are low or moderate. When tax rates are high, further tax hikes have a large, negative impact on growth performance. We argue that this non-linearity is consistent with the empirical evidence on the effect of taxation and other disincentives to investment and innovation on economic growth.
You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.
This paper was revised on May 8, 2013