Non-linear Effects of Taxation on Growth

Nir Jaimovich, Sergio Rebelo

NBER Working Paper No. 18473
Issued in October 2012
NBER Program(s):   EFG

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.

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This paper was revised on May 8, 2013

Acknowledgments

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