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Tax Structure and Economic Growth: Do Differences in Income Level and Government Effectiveness Matter?

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  • Halit Yanikka ya

    (Department of Economics, Gebze Technical University)

  • Taner Turan

    (Department of Economics, Gebze Technical University)

Abstract

We empirically examine the effects of both overall tax rate and changes in tax structure on growth by using data for more than 100 high, middle and lower income countries by employing the GMM estimation methods. We classify the countries by their income and their government effectiveness levels. We investigate whether the government effectiveness is important in affecting the nature of the relationship for non-OECD countries. Although there are some exceptions, our results don’t support the idea that overall tax rate or changes in tax structure have a significant effect on growth rate. We find that a shift from income to consumption and property taxes leads to a positive and significant effect on growth rate while holding overall tax burden constant. Our results also suggest that a shift from consumption and property taxes to income taxes has a positive effect on growth rate for low-income countries.

Suggested Citation

  • Halit Yanikka ya & Taner Turan, 2017. "Tax Structure and Economic Growth: Do Differences in Income Level and Government Effectiveness Matter?," Working Papers 2017-04, Gebze Technical University, Department of Economics.
    • Handle: RePEc:geb:wpaper:2017-04
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    More about this item

    Keywords

    taxation; growth; tax structure; government effectiveness;
    All these keywords.

    JEL classification:

    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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