Tax Capacity and Growth: Is there a Tipping Point?
IMF Working Papers, December 2, 2016
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Bibliographic details
- Authors: Vitor Gaspar, Laura Jaramillo, Philippe Wingender
- Published: December 2, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475558173.001
Research question and data
- Research question: Is there a minimum tax-to-GDP ratio associated with a significant acceleration in the process of growth and development?
- Contemporary database: 139 countries from 1965 to 2011.
- Historical database: 30 advanced economies from 1800 to 1980.
- Authors: Vitor Gaspar, Laura Jaramillo, Philippe Wingender.
- Publication date: December 2, 2016.
- Working Paper Series: Working Paper No. 2016/234, Pages: 40, DOI: https://doi.org/10.5089/9781475558173.001, ISBN: 9781475558173, ISSN: 1018-5941.
Key empirical findings
- Existence of a tipping point: The study finds that a tipping point in tax-to-GDP levels exists.
- Estimated tipping point level: 12¾ percent of GDP.
- Magnitude of effect (contemporary dataset): A country just above the threshold will have GDP per capita 7.5 percent larger, after 10 years.
- Robustness: Estimated tipping points are similar across the two datasets (contemporary and historical).
- Economic significance: The effect is described as tightly estimated and economically large.
Themes and methodological notes
- Analytical focus: Threshold analysis of tax-to-GDP levels and multiple equilibria in growth outcomes.
- Subject areas covered: Econometric analysis; Expenditure; Legal support in revenue administration; Public investment spending; Revenue administration; Social security contributions; Taxes.
- Keywords indicating methods and scope: base year, development, GDP series, growth rate, income per capita, multiple equilibria, point estimate, real GDP, State capacity, tax-to-GDP distribution, tax-to-GDP level, tax-to-GDP ratio, tax-to-GDP threshold, tax-to-GDP tipping point, Threshold analysis.
Policy-relevant implication (as derived from findings)
- Crossing the identified tax-to-GDP threshold (12¾ percent of GDP) is associated with materially higher GDP per capita outcomes over a 10-year horizon (7.5 percent larger for countries just above the threshold), suggesting that policies that raise and sustain tax capacity to at least that level may be associated with stronger development outcomes.
Source: Tax Capacity and Growth: Is there a Tipping Point? IMF Working Paper No. 2016/234 (December 2, 2016).
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- Tax Capacity and Growth: Is there a Tipping Point?