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NBER Working Papers and Publications
|January 2016||Taxation, Corruption, and Growth|
with Philippe Aghion, Ufuk Akcigit, William R. Kerr: w21928
We build an endogenous growth model to analyze the relationships between taxation, corruption, and economic growth. Entrepreneurs lie at the center of the model and face disincentive effects from taxation but acquire positive benefits from public infrastructure. Political corruption governs the efficiency with which tax revenues are translated into infrastructure. The model predicts an inverted-U relationship between taxation and growth, with corruption reducing the optimal taxation level. We find evidence consistent with these predictions and the entrepreneurial channel using data from the Longitudinal Business Database of the US Census Bureau. The marginal effect of taxation for growth for a state at the 10th or 25th percentile of corruption is significantly positive; on the other hand, ...
Published: Philippe Aghion & Ufuk Akcigit & Julia Cagé & William R. Kerr, 2016. "Taxation, corruption, and growth," European Economic Review, . citation courtesy of