Growth-Friendly Tax Structures: An Indicator-Based Approach

Abstract

This paper designs a horizontal indicator-based assessment methodology aimed at identifying those EU countries presenting a potential need and scope for shifting taxation away from labour to other tax bases less detrimental to growth. The assessment methodology, as a first step, selects a set of indicators measuring specific aspects of tax policy. Subsequently, for each individual indicator, performance thresholds are calculated based on a benchmarking approach. Finally, a screening algorithm based on commonly accepted findings from the relevant economic literature is used to assess the overall performance of a country in two policy areas, namely the need for a tax shift and the scope for it. Various robustness checks are performed.JEL classification: E62, H2, J2.

Tax Composition and Growth: A Broad Cross-country Perspective

“…Some interesting policy conclusions could emerge from the analysis. High‐and middle‐income countries may want to consider reallocations from those taxes levied on labor towards those levied on consumption and properties to boost growth (detailed recommendations for specific EU countries can be found, for instance, in Wöhlbier et al ., ). Such policy measures could be particularly relevant in advanced countries experiencing high unemployment rates, and emerging countries suffering from large informality rates in the labor market.…”

“…The policy relevance of considering individual taxes to assess the scope to shift taxation toward a more growth‐friendly structure in EU countries is discussed at length in the recent work of Wöhlbier et al . ().…”

Fiscal policies in EMU countries: strategies and empirical evidence

“…In addition, the long-term interest rate is subject to increased pressure when the public debt-to-GDP ratio is above 70 per cent. Some fiscal policy effects, particularly on the correlation between taxation and GDP growth, are offered by Wöhlbier et al (2014), where they focused on changes about the US legislation of taxation, implemented to reduce public deficit and to reach long term targets, estimating the effects on real GDP. In Romer and Romer (2007), an increase of 1 per cent of fiscal pressure implies a reduction of real GDP and in the following three years, up to a maximum of 3 per cent.…”