The Relationship Between Corporate Tax Rate and Economic Growth During the Global Financial Crisis: Evidence from a Panel VAR
Article Sidebar
Main Article Content
Abstract
This paper compares dynamic relationship between economic growth and corporate tax rate during the recent financial crisis and the non–crisis period using a panel VAR for 29 OECD countries over the period 1998-2016. The results show that corporate tax rate has a significantly negative effect on economic growth. Moreover, the recent financial crisis has had a significant effect on the endogenous interaction between corporate tax rate and economic growth. According to Granger causality test, there is only one-way causality from corporate tax rate to economic growth during the non-crisis period. Interestingly, there are not any causal relationships between corporate tax rate and economic growth during the crisis period. The results show that the recent crisis has had a significant effect on the endogenous interaction between corporate tax rate and economic growth.
Keywords:
Downloads
Article Details
References
Adkisson, R. V. & Mohammed, M. (2014). Tax Structure and State Economic Growth during the Great Recession. The Social Science Journal, 21, 79-89. Doi: https://doi.org/10.1016/j.soscij.2013.10.009
Arnold, J.M., Brys, A., Heady, C., Johansson, A., Schwellnus, C. & Vartia, L. (2011). Tax Policy for Economic Recovery and Growth. The Economic Journal, 121, 59-80. Doi: https://doi.org/10.1111/j.1468-0297.2010.02415.x
Atems, B. (2015). Another Look at Tax Policy and State Economic Growth: The Long-run and Short-run of It. Economics Letters, 127, 64-67. Doi: https://doi.org/10.1016/j.econlet.2014.12.035
Baltagi, B.H. (1995). Econometric Analysis of Panel Data. Wiley: Chichester.
Benassy-Quere, A., Fontagne, L. & Lahreche-Revil, A. (2005). How Does FDI React to Corporate Taxation? International Tax and Public Finance, 12 583–603. Doi: https://doi.org/10.1007/s10797-005-2652-4
Dackehag, M. & Hansson, A. (2012). Taxation of Income and Economic Growth: An Empirical Analysis of 25 Rich OECD Countries. Lund University, Department of Economics, Working Paper 2012:6.
De Mooij, R.A. & Ederveen, S. (2005). Explaining the Variation in Empirical Estimates of Tax Elasticities of Foreign Direct Investment. Tinbergen Institute Discussion Paper, No. 2005-108/3. Doi: https://doi.org/10.2139/ssrn.869753
De Mooij, R.A. & Ederveen, S. (2006). What a Difference Does it Make? Understanding the Empirical Literature on Taxation and International Capital Flows. European Commission Economic Paper No. 261.
Djankov, S., Ganser, T., McLiesh, C., Ramalho, R. & Shleifer, A. (2010). The Effect of Corporate Taxes on Investment and Entrepreneurship. American Economic Journal Macroeconomics, 2(3), 31-64. Doi: https://doi.org/10.1257/mac.2.3.31
Desai, M.A., Foley, C.F. & Hines Jr., J.R. (2004). Foreign Direct Investment in a World of Multiple Taxes. Journal of Public Economics, 88, 2727-2744. Doi: https://doi.org/10.1016/j.jpubeco.2003.08.004
Dungey, M. (2009). The Tsunami: Measures of Contagion in the 2007-08 Credit Crunch, CESifo Forum, 9(4), 33-34.
Dungey, M. & Gajurel, D. (2014). Equity Market Contagion during the Global Financial Crisis: Evidence from the World's Eight Largest Economies. Economic Systems, 38(2), 161-177. Doi: https://doi.org/10.1016/j.ecosys.2013.10.003
Easterly, W. & Rebelo, S. (1993). Fiscal Policy and Economic Growth. Journal of Monetary Economics, 32, 417-458. Doi: https://doi.org/10.1016/0304-3932(93)90025-B
Engen, E. & Skinner, J. (1996). Taxation and Economic Growth. National Tax Journal, 49(4), 617-642. Doi: https://doi.org/10.3386/w5826
Favero, C.A. & Giavazzi, F. (2002). Is the International Propagation of Financial Shocks Non-linear? Evidence from the ERM. Journal of International Economics, 57(1), 231-246. Doi: https://doi.org/10.1016/S0022-1996(01)00139-8
Gober, J. R. & Burn, J. O. (1997). The Relationship between Tax Structures and Economic Indicators. Journal of International Accounting, Auditing and Taxation, 6(1), 1-24. Doi: https://doi.org/10.1016/S1061-9518(97)90010-0
Harberger, A. C. (1964). Taxation, Resource Allocation, and Welfare. In NBER and the Brookings Institution (eds.), The Role of Direct and Indirect Taxes in the Federal Revenue System. New Jersey: Princeton University Press. Doi: https://doi.org/10.1515/9781400875931-003
Helms, L. J. (1985). The Effect of State and Local Taxes on Economic Growth: A Time Series-Cross Section Approach. The Review of Economics and Statistics, 67(4), 574-582. Doi: https://doi.org/10.2307/1924801
Hindricks, Jean & Myles, Gareth D. (2006). Intermediate Public Economics, The MIT Press.
King, R. G. & Rebelo, S. (1990). Public Policy and Economic Growth: Developing Neoclassical Implications. Journal of Political Economy, 98(5), 126-150. Doi: https://doi.org/10.1086/261727
Koch, S. F., Schoeman, N. J. & Van Tonder, J. J. (2005). Economic Growth and the Structure of Taxes in South Africa: 1960-2002. South African Journal of Economics, 73(2), 190-210. Doi: https://doi.org/10.1111/j.1813-6982.2005.00013.x
Lee, Y. & Gordon, R. H. (2005). Tax Structure and Economic Growth. Journal of Public Economics, 89, 1027-1043. Doi: https://doi.org/10.1016/j.jpubeco.2004.07.002
Lowell, J., Neu, C.R., & Tong, D. (1998). Financial Crisis and Contagion in Emerging Market Countries. Monograph RAND.
Mendoza, E. G., Milesi-Ferretti, G. M & Asea, P. (1997). On the Ineffectiveness of Tax Policy in Altering Long-Run Growth: Harberger’s Superneutrality Conjecture. Journal of Public Economics, 66, 99-126. Doi: https://doi.org/10.1016/S0047-2727(97)00011-X
NBER. (2010). Business cycle dating committee report. Technical report, National Bureau of Economic Research (2010).
Ojede, A. & Yamarik, S. (2012). Tax Policy and State Economic Growth: The Long-run and Short-run of It. Economics Letters, 116, 161-165. Doi: https://doi.org/10.1016/j.econlet.2012.02.023
Pecorino, P. (1994). The Growth Rate Effects of Tax Reform. Oxford Economic Papers, 46(3), 492-501. Doi: https://doi.org/10.1093/oxfordjournals.oep.a042143
Pecorino, P. (1995). Tax Rates and Tax Revenues in a Model of Growth through Human Capital Accumulation. Journal of Monetary Economics, 36, 527-539. Doi: https://doi.org/10.1016/0304-3932(95)01224-9
Pesendorfer, K. (2008). Tax and Economic Growth in Austria. Monetary Policy and the Economy, Quarter 3, 21-40.
Rebelo, S. (1991). Long-Run Policy Analysis and Long-Run Growth. The Journal of Political Economy, 99(3), 500-521. Doi: https://doi.org/10.1086/261764
Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political Economy, 94(5), 1002-1037. Doi: https://doi.org/10.1086/261420
Salanie, B. (2003). The Economics of Taxation. The MIT Press.
Slemrod, J. B. (1990). Tax Effects on Foreign Direct Investment in the United States: Evidence from a Cross-Country Comparison. In Assaf Razin & Joel Slemrod (eds.) Taxation in the Global Economy (pp. 79-122). University of Chicago Press.
Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics, 70(1), 65-94. Doi: https://doi.org/10.2307/1884513
Stoilova, D. (2017). Tax Structure and Economic Growth: Evidence from the European Union. Contaduría y Administración, 62(3), 1041-1057. Doi: https://doi.org/10.1016/j.cya.2017.04.006
Stokey, N. L. & Rebelo, S. (1995). Growth Effects of Flat-Rate Taxes. Journal of Political Economy, 103(3), 519-550. Doi: https://doi.org/10.1086/261993
Trostel, P. A. (1993). The Effect of Taxation on Human Capital. Journal of Political Economy, 101(2), 327-350. Doi: https://doi.org/10.1086/261878
Wang, P. & Yip, C. K. (1992). Taxation and Economic Growth: The Case of Taiwan. The American Journal of Economics and Sociology, 51(3), 317-331. Doi: https://doi.org/10.1111/j.1536-7150.1992.tb03483.x
Wildmalm, F. (2001). Tax Structure and Growth: Are Some Taxes Better than Others? Public Choice, 107(3/4), 199-219. Doi: https://doi.org/10.1023/A:1010340017288
Yalama, A. (2012). International Financial Contagion: The Role of the UK, Bogazici Journal, Review of Social, Economic and Administrative Studies, 26(2), 115-129. Doi: https://doi.org/10.21773/boun.26.2.5