TAXATION, AGGREGATE ACTIVITY AND ECONOMIC GROWTH: CROSS-COUNTRY EVIDENCE ON SOME SUPPLY-SIDE HYPOTHESES

Data from sixty-three countries are used to examine the impact of average and marginal tax rates on the level and growth of economic activity. Apparent negative effects of tax rates on growth disappear upon controlling for (1) potential endogeneity of average tax rates to per capita income and (2) the relation between economic growth and per capita income. However, controlling for average tax rates, increases in marginal tax rates have negative effects on the level of economic activity. This evidence supports the hypothesis that reductions in the "progressivity" of tax rates induce a parallel shift upward in the growth path.     

Tax rates and economic growth in the OECD countries

This article proposes refined econometric estimates of effective marginal income tax rates for 23 OECD countries from 1951 to 1990. Panel regressions find such measures negatively correlated with economic growth. These results are consistent with endogenous growth theories and opposite to those of most empirical literature, which relies on measures of effective average tax rates. The negative correlation is also robust to consideration of other growth determinants.     

THE LAGGED IMPACT OF STATE AND LOCAL TAXES ON ECONOMIC ACTIVITY AND POLITICAL BEHAVIOR

Politicians are frequently characterized as making fiscal decisions based on a shorter time horizon than is required for full taxpayer adjustment, thus generating near term benefits and relatively high tax rates. This argument requires a negative impact of taxes on economic activity distributed over a relatively long time period. Considerable empirical evidence suggests that state and local taxes do not significantly impact the geographic distribution of economic activity; this analysis, however, finds a significant negative distributed lag impact of such taxes on capital formation. The approach emphasizes interstate tax competition in formulating the cross-section time-series estimating equation.     

THE MICROECONOMIC FOUNDATIONS OF MEASURING BRACKET CREEP and OTHER TAX CHANGES

We derive a measure of the bracket-creep-induced inflation tax based on an income-compensation function that recognizes that consumers substitute among deductible and nondeductible goods as the incentives to consume the goods change over time. The measure of the inflation tax is decomposed into a convenient function of marginal tax rates and the change in expenditures on tax deductible goods relative to nondeductible goods that are required to maintain a fixed level of utility. Tentative estimates suggest that the inflation tax as a percentage of constant utility income during the 1970s averaged about 1 percent per year.     

THE CULTURE OF CORRUPTION,TAX EVASION,AND ECONOMIC GROWTH

This study uses a dynamic general equilibrium model to quantify the effects of corruption and tax evasion on fiscal policy and economic growth. The model is calibrated to match estimates of tax evasion in developing countries. The calibrated model is able to generate reasonable predictions for net tax rates, the corruption associated with public investment projects, and the negative correlation between corruption and tax revenue. The presence of corruption and evasion is shown to have significant, but not large, negative effects on economic growth. The relatively moderate effects help explain the absence of a robust negative correlation between growth and corruption in cross‐country data. The model also implies that cracking down on tax evasion before addressing corruption can be a bad idea and that higher wages for public officials can improve welfare. (JEL H3, O4)     

Taxation, Economic Growth and Political Stability

The study analyzed the effect of Political Stability (PS) and Economic Growth (GDP) on Tax and used Freedom of Corruption (FC) and Government Effectiveness (GE) as control variables. Study used unbalanced (includes 98 countries) as well as balanced (includes 57 countries) data for the period 2002–2008. Study found that all variables are non-normal. Further, it is found that PS affects tax in lower quantiles and somewhat higher quantiles but not in highest and intermediate quantiles. GE affects taxes in all quantiles but not in the highest level and value of the coefficient is also found to decreasing with the higher quantiles. Effect of GDP on tax is negative in all quantiles. Importantly, FC is found to be having negative effect at lower level of quantiles and positive at higher level of quantiles with increasing the coefficient value as quantiles increases.     

Willingness to pay tax: The Laffer curve revisited for 12 OECD countries

According to Laffer, economic activities are a decreasing function of the taxation rate. As a consequence, total tax revenue increases with the taxation rate at its lower levels and decreases against it at its higher levels. The result is the Laffer curve. According to him, the reason for this decrease lies in decreasing economic activities. Although this may be true for activities in the official (white) sector, in the unofficial (black) sector they can increase under the influence of an increasing taxation rate. Part of the Laffer effect may be nothing more than an activity switch away from the white towards the (hidden) black sector. This paper takes both effects into account: decreasing activities in the white sector combined with increasing activities in the black sector. It examines the computation of the maximum tax revenue generating taxation rate for a number of OECD countries. It concludes that, with the exception of Sweden, the marginal taxation rate in these countries is below its optimum.     

Argentine experience in the field of illegal immigration

This article provides a brief history of Argentine policy toward migratory flows from neighboring countries and Europe, and concludes with statistics on the number of foreigners in Argentina in the 1970-80 period. Measures passed during the 1940s and 1950s were aimed at providing amnesty for foreigners who were residing in Argentina without immigrant status. However, the lack of an adequate administrative structure to regulate foreigners at the borders was a drawback for migration authorities and limited the possiblility of applying admission criteria effectively. By 1970, there were 583,000 foreigners from neighboring countries living in Argentina, which represented a 25% increase from 1960. 42% of these migrants were in the metropolitan region of the country, indicative of a shift away from employment in agriculture. Decree No. 87, passed in 1974, represented an extension of a migration policy aimed at granting ample facilities for permanent residence to aliens from contiguous countries and was designed to prevent abuse of clandestine workers by employers. As a result of this measure, 150,000 foreigners were able to settle legally in the country. A 1981 law, yet to be implemented, establishes a new legal framework aimed at fostering immigration and regulating the admission of foreigners. To attain the objective of settling workers in areas of the country considered of prime importance to economic development, the law provides for infrastructural investments and promotional measures in areas such as tax exemption and the granting of credit. The 1980 National Population Census indicated there were 677,000 foreigners from neighboring countries in Argentina. In that year, foreigners comprised 2.4% of the country's population and 3.1% of the inhabitants of the metropolitan region. These figures are indicative of a decline in the growth of immigration, most likely due to the decline in the purchasing power of workers' salaries in the late 1970s.     

PUBLIC SPENDING REALLOCATIONS AND ECONOMIC GROWTH ACROSS DIFFERENT INCOME LEVELS

This article examines the effects of public spending reallocations on economic growth. Assembling a disaggregated public spending dataset of 83 countries over the 1970–2011 period, we show that spending reallocations toward education, from health and social protection, have significant growth‐promoting effects across a wide range of countries' income levels. However, income heterogeneity matters, particularly when reallocations involve infrastructure spending. Specifically, a reallocation from this spending to education also promotes growth, albeit primarily when a country's income level is low. This occurs because the effects of infrastructure spending are particularly weak in low‐income countries, possibly due to the low quality of governance. (JEL O43, H50, O11)     

FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH: THE GROWTH ACCOUNTING PERSPECTIVE

A positive relationship between FDI and economic growth under two economic conditions has been estimated: a sufficient level of human capital and well-developed financial markets, respectively. However, these two conditions can be fundamentally different catalysts for FDI to promote economic growth in the perspective of growth accounting. Using data from 69 countries over 1970–1989, we find that FDI promotes productivity growth only when the host country reaches a threshold level of human capital; and FDI promotes capital growth only when a certain level of financial development is achieved. ( JEL F21)     

Tax–benefit revealed social preferences

This paper inverts the usual logic of applied optimal income taxation. It starts from the observed distribution of income before and after redistribution and corresponding marginal tax rates. Under a set of simplifying assumptions, it is then possible to recover the social welfare function that would make the observed marginal tax rate schedule optimal. In this framework, the issue of the optimality of an existing tax–benefit system is transformed into the issue of the shape of the social welfare function associated with that system and whether it satisfies elementary properties. This method is applied to the French redistribution system with the interesting implication that the French redistribution authority may appear, under some plausible scenario concerning the size of the labor supply behavioral reactions, non Paretian (e.g. giving negative marginal social weights to the richest class of tax payers).     

Tax Uncertainty and Investment: A Cross-Country Empirical Examination

An empirical examination of uncertain tax policy is crucial to a full understanding of the interplay between taxes and investment, especially given the ambiguities in the limited theoretical literature. This article empirically investigates the impact on investment of volatility in effective tax rates on capital income in a cross-section of the 15 countries of the European Union, the United States, and Japan. Panel regression results suggest that the volatility of effective tax rates on capital income has a significant negative impact on investment per worker, with elasticities ranging from −0.012 to −0.029.     

Banking Sector Development and Economic Growth in Central and Southeastern Europe Countries

The aim of this paper is to empirically examine the relationship between banking sector development and economic growth in 16 transition countries in Central and Southeastern Europe in the period from 1995 to 2010. We apply fixed-effects panel model and control for other relevant determinants of economic growth and endogeneity. We measure the level of banking sector development using the amount of bank credit allocated to the private sector as a share of GDP. The second variable for the level of financial sector development is the margin between lending and deposit interest rates. According to our results the amount of bank credit allocated to the private sector, apparently does not speed up economic growth in transition countries. The second variable, interest rate margin is negatively but not significantly associated with economic growth.     

Arab labour migration: a review of trends and issues

"The objectives set for this paper are to: provide an analysis of volume and trends in labour migration within the Arab region; discuss the major characteristics of the migrants, including demographic features, types of economic activity, wage levels and duration of stay in host countries; [and] outline and discuss the major issues in labour migration both from the sending and receiving countries. The time period covered by the study is from the mid 1970s to the present." (SUMMARY IN FRE AND SPA)     

HOW THE LEGACY OF FRENCH COLONIZATION HAS SHAPED DIVERGENT LEVELS OF ECONOMIC DEVELOPMENT IN EAST ASIA: A Time‐Series Cross‐National Analysis

Although many countries in East Asia have achieved high growth rates since the middle of the 20th century, former French colonies in the region have struggled to attain comparable levels of economic development. This article is an attempt to explain this variation in development through a cross‐national analysis of economic growth in East Asia for the period from 1970 to 2007. Results suggest that the underperformance of former French colonies is attributable to their inheritance of colonial institutions that have been unfavorable for domestic investment, international trade, and educational attainment. Overall, conclusions lend support for the idea that long‐term economic development should be understood in terms of path dependence, and that sustained economic growth requires a concerted effort to restructure growth‐adverse institutional arrangements.     

Reforms of Tax Systems in Transition Countries

In the 15 years since the beginning of their transformation reforms, nearly all 27 post-socialist countries have adopted the three main taxes typical for a market economy, namely, personal income tax, corporate income tax, and value-added tax. However, there is great diversity in the detailed solutions, rates, deductions, allowances, and tax bases applied to taxes in these countries. Nevertheless, the basic prerequisite for the further enhancement of these systems has been met. In recent years, it has been possible to observe a clear tendency to broaden tax bases and reduce the top income tax rates. In spite of this, serious problems persist, as regards further improvement of the functioning of the system, increasing its transparency and homogeneity, and limiting implementation problems. For some countries, this is a very serious problem, particularly in connection with the so-called quasi-tax activity in the area of energy resources and the size of the informal economy. The paper also provides a short comparative analysis of the size of public revenues in a historical context – from the beginning of the transformation process to the beginning of the current millennium.     

World Income Distribution and Tax Reform: What Tax Systems Do Low‐Income Countries Need?

This article develops a new method for assessing relative direct tax burdens across all countries, treating the world as a single economic entity and assuming identical preferences across countries. Empirical results show that the new direct tax burden indices are significantly high in low‐income countries in comparison with middle‐ and high‐income countries. This article argues in favour of narrowing the base of income and capital gains tax in low‐income countries and a long‐term convergence of the tax burden levels across countries. Future research into tax reforms in low‐income countries should focus simultaneously on economic growth, quality of life and the natural environment.     

The participation of women in the labour force of Latin America: fertility and other factors

The level of labor force participation among Latin American women, when compared with participation rates for other countries, is the lowest in the world. Only 20% or less of women 10 years of age and older are economically active. This level did not change much between 1950 and 1970. Few women work in agriculture. The following factors are considered for their effect on labor force participation of urban women: marital status, education, income, and the structure and stage of development of the society. Married women have a low participation rate. More highly educated women are more likely to work, but there must be demand for their work services. As the economy of various countries has progressed, female participation in domestic services has decreased, in industry has remained constant between 1960 and 1970, and in social services has expanded. It is concluded that work participation for married women will only increase with the following changes: 1) improved educational opportunities for women; 2) structural change and modernization in the economy; and 3) reduced family fertility. Changes in the first 2 factors are more important than reduced fertility. Since 1960, only Chile and Costa Rica have had a 25% decline in fertility rates.     

FINANCIAL MARKETS' SHUTDOWN AND REACCESS

We employ a discrete‐time parametric duration model on a group of 121 countries over the period 1970–2011 and find that the probability of the end of financial markets' shutdown and reaccess falls as these events become longer. We also show that: (1) shutdown episodes are longer when economic prospects are poor and the degree of financial openness falls, the chief executive has been in office for long periods, and the country has a default history and (2) spells of reaccess tend to be longer when economic growth improves and financial openness increases, there are neither government crises nor government instability, and the country did not default in the past. (JEL C41, G15)     

DOES THE TAX SYSTEM FAVOR INVESTMENT IN HIGH-TECH OR SMOKE-STACK INDUSTRIES?

In this paper, we examine whether differential use of depreciable assets gives rise to differential tax treatment of high-technology industries relative to other industries. We calculate the total effective tax rate on a marginal investment in each of 34 assets, and weighting by the use of these assets, we calculate total effective tax rates for 73 industries. We find considerable variation within the high-tech sector and within the more traditional sector, but for the case of a taxable firm with a given debt/equity ratio, we do not find any systematic differences between overall rates in the two sectors.