Do Taxes Matter for Long-Run Growth?: Harberger's Superneutrality Conjecture
Abstract
Harberger's supemeutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. Theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.
ABSTRACT Harberger's supemeutralityconjecture contends that, although in theorythe mixofdirect and indirecttaxes affects investmentand growth, in practice growth effects oftaxation are negligible. This paperprovide5 evidence in supportofthis view by testingthe predictions ofendogenous growth models driven by human capital accumulation. Theoretical analysis highlights implications ofdifferent taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significa:1t investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction ofother growth determinants.
Cite this document
Enrique G. Mendoza, Gian Maria Milesi-Ferreti, & and Patrick Asea (1995). Do Taxes Matter for Long-Run Growth?: Harberger's Superneutrality Conjecture (IFDP 1995-511). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-511
@techreport{wtfs_ifdp_1995_511,
author = {Enrique G. Mendoza and Gian Maria Milesi-Ferreti and and Patrick Asea},
title = {Do Taxes Matter for Long-Run Growth?: Harberger's Superneutrality Conjecture},
type = {International Finance Discussion Papers},
number = {1995-511},
institution = {Board of Governors of the Federal Reserve System},
year = {1995},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-511},
abstract = {Harberger's supemeutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. Theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.},
}