Tax Capacity and Growth: Is there a Tipping Point?

Author/Editor:

Vitor Gaspar ; Laura Jaramillo ; Philippe Wingender

Publication Date:

December 2, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Is there a minimum tax to GDP ratio associated with a significant acceleration in the process of growth and development? We give an empirical answer to this question by investigating the existence of a tipping point in tax-to-GDP levels. We use two separate databases: a novel contemporary database covering 139 countries from 1965 to 2011 and a historical database for 30 advanced economies from 1800 to 1980. We find that the answer to the question is yes. Estimated tipping points are similar at about 12¾ percent of GDP. For the contemporary dataset we find that a country just above the threshold will have GDP per capita 7.5 percent larger, after 10 years. The effect is tightly estimated and economically large.

Series:

Working Paper No. 2016/234

Subject:

Econometric analysis Expenditure Legal support in revenue administration Public investment spending Revenue administration Social security contributions Taxes Threshold analysis

English

Publication Date:

December 2, 2016

ISBN/ISSN:

9781475558173/1018-5941

Stock No:

WPIEA2016234

Pages:

40

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