Nonlinear Growth Effects of Taxation: A Semi‐parametric Approach Using Average Marginal Tax Rates

Abstract

SUMMARY One of the major challenges of empirical tax research is the identification and calculation of appropriate tax data. While there is consensus that average marginal tax rates are most suitable for studying the effects of tax policy on economic growth, because of data limitations the calculation of marginal tax rates has been limited to the USA and the UK. This paper provides calculations of average marginal tax rates for the four Scandinavian countries using the methodologies of Seater (1982, 1985) and Barro and Sahasakul (1983, 1986). Then, by pooling the newly calculated tax rates for the Scandinavian countries with the data for the USA and the UK, we investigate the effects of tax policy shocks on the per capita GDP growth rate. Our results suggest that an increase in average marginal tax rates has a negative impact on economic growth. Employing additive mixed panel models with penalized splines as estimation approach, we show that changes in tax rates have nonlinear effects. Increasing average marginal tax rates turn out to be the most distorting at relatively moderate tax rates. Copyright © 2013 John Wiley & Sons, Ltd.

Negotiating with Terrorists: The Costs of Compliance

“…In the estimation approach, we follow closely Arin et al () and Berlemann et al () and let f j ( x j ) be smooth but otherwise undetermined functions to be estimated from the data. The latter models have been coined (generalized) additive models by Hastie and Tibshirani () and are extensively discussed in Wood () and Fahrmeir et al (), which use the overall model class of STAR models.…”

“…In the estimation approach, we follow closely Arin et al (2013) and Berlemann et al (2015) and let f j (x j ) be smooth but otherwise undetermined functions to be estimated from the data. The 18 We alternatively employed a Poisson distribution for our dependent variable for all of our models in the article.…”

A Survey on the Output Effects of Tax Reforms From a Policy Perspective

“…Others have alternatively calculated “effective” rates, tax revenue data as ratios of the relevant tax base such as personal incomes or corporate profits (Angelopoulos, Economides, and Kammas ; Padovano and Galli ; Romero‐Ávila and Strauch ). A smaller number have reported tax‐growth effects using statutory tax rates (e.g., Angelopoulos, Economides, and Kammas ; Widmalm ) and average marginal tax rates (Arin et al ). We might think of these as capturing the level and structure effects of taxation to different degrees.…”

“…The results by Denaux, Cunningham, and Allen () are likewise difficult to interpret because they only include proxies of infrastructure public spending (a measure of road density) and education expenditure per student (and not as a ratio to total spending or GDP) as control variables. The number of fiscal variables included in the specifications of Aiginger and Falk (), Arin et al (), Widmalm (), Castro (), Colombier (), Doménech and García (), Karras (), and Padovano and Galli () is likewise not sufficient to identify the offsetting change. We therefore exclude their estimates in the summary tables.…”

Taxation and economic growth in the European Union: a quantile approach

“…Beyond a linear or monotonic relationship between taxation and economic growth, and despite a more complete revision of the literature reported in Section 2, it should be noted that the most recent papers have pointed out the heterogeneous relationship among taxation and economic growth (Durusu-Ciftci, Gokmenoglu and Yetkiner, 2018) or non-linear (Arin et al, 2013;Jaimovich and Rebelo, 2017). In addition, Milasi and Waldmann (2018) recently reported a quadratic relationship between top marginal personal income tax rates and economic growth.…”