Tax structure and macroeconomic performance

Number: 74
Year: 2015
Author(s): Giampaolo Arachi, Valeria Bucci, Alessandra Casarico
ABSTRACT This paper reassesses the relationship between tax structure and long run income, using as indicators of tax structure both a new series of implicit tax rates based on Mendoza et al. (1997) and tax ratios, adopting a dynamic panel estimation strategy, and explicitly accounting for cross-section dependence in the panel. When implicit tax rates are used, the paper shows, the link between tax structure and long run income per capita is not robust to the adoption of different assumptions on observable and unobservable heterogeneity across countries. When tax ratios are used, there is some evidence of a negative impact of labour taxation on long run income, but this result is shown to capture non-fiscal effects coming from the evolution of the labour share. Turning to the short run, the research presented here finds strong evidence of a positive effect on per capita income of a tax shift from labour and capital taxation towards consumption taxation, which provides support for fiscal devaluations.

Giampaolo Arachi

Università del Salento and Dondena Centre for Research on Social Dynamics and Public Policy, Italy


Valeria Bucci

Università del Salento, Italy


Alessandra Casarico

Università Bocconi and Dondena Centre for Research on Social Dynamics and Public Policy, Italy; CESifo, Germany


Keywords: long run income, tax structure, fiscal devaluation, cross-section dependence


The paper may be downloaded here.


Keywords: long run income,tax structure,fiscal devaluation,cross-section dependence