The long‐run investment effect of taxation in OECD countries. (7th December 2022)

• Record Type: Journal Article
• Authors: Madsen, Jakob B.; Minniti, Antonio; Venturini, Francesco
• Is Part Of: Economica. Volume 90:Number 358(2023)
• Page Start: 584
• Page End: 611
• Publication Date: 2022-12-07
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/ecca.12457
• Languages: English
• ISSNs: 0013-0427

Abstract

Abstract: The gradually changing nature of production and the move away from tangible investment towards intangible investment over the past century suggest that the effects of the tax structure on investment need to be reassessed. To address this issue, we establish an endogenous growth model in which investment in tangible assets, R&D and education are influenced by different types of taxes. We test the long‐run implications of the model using annual data for 21 OECD countries over the period 1890–2015. We find that corporate income taxes reduce investment in tangible assets and R&D. However, while personal income taxes reduce investment in tertiary education, they enhance investment in R&D. Thus a revenue‐neutral switch from corporate to personal income taxes is growth enhancing.