Abstract
This paper analyzes the impact of the composition of taxes on economic growth using a panel of OECD countries. In contrast to Kneller et al. (Fiscal policy and growth: evidence from OECD countries, 1999), over 1980–2005 distortionary taxation does not reduce growth, while an increase in non-distortionary taxation has a negative association with growth. When the data are extended to the great recession and its recovery period (1980–2015), distortionary taxation significantly reduces growth as originally conjectured, but the negative effect of non-distortionary taxation survives. This paper argues that distortions from expenditure taxes in recent years can be accounted for by a combination of an exploding increased debt/GDP and globalization.
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