Tax Structure and Economic Growth

Tax Structure and Economic Growth Young Lee a and Roger H Gordon b a b Hanyang University, Seoul, Korea University of California, San Diego, USA July 15, 2004 Abstract Past theoretical work predicts that higher corporate tax rates should decrease economic growth rates, while the effects of high personal tax rates are less clear In this paper, we explore how tax policies in fact affect a country’s growth rate, using crosscountry data during 1970-1997 We find that statutory corporate tax rates are significantly negatively correlated with cross-sectional differences in average economic growth rates, controlling for various other determinants of economic growth, and other standard tax variables In fixed-effect regressions, we again find that increases in corporate tax rates lead to lower future growth rates within countries The coefficient estimates suggest that a cut in the corporate tax rate by ten percentage points will raise the annual growth rate by one to two percentage points 1 Introduction During the past several decades, there has been an enormous amount of work in public finance documenting myriad ways in which taxes distort the allocation decisions of firms and individuals.1 In comparison, there has been much less work, at least in public finance, documenting effects of the tax structure on the economy's overall growth rate Of course, within a neoclassical framework, as in Solow (1970), growth simply depends on the accumulation of capital and labor, so that the existing empirical work studying tax effects on investment and labor supply capture the relevant effects on growth In this framework, however, there would be no effects of taxes on total factor productivity The more recent literature on endogenous growth, however, suggests that positive externalities omitted from the traditional neoclassical models play an important role in explaining long-run growth There could be a variety of possible sources of these externalities There is a strong presumption that R&D and entrepreneurial activity more generally provide such positive spillovers.2 Lucas (1988) emphasizes that education can generate important positive externalities, since individuals learn by observing the behavior of others.3 Alternatively, de Long and Summers (1991) report evidence that equipment investment may generate important positive spillovers.4 For a recent overview of these contributions, see Feldstein (2002) See Hall(1995) for evidence that the social return to R&D is much above the private return These spillovers can occur across generations, through learning more from better educated teachers, or within a generation by learning more from better educated colleagues See Moretti (forthcoming) for recent evidence on this latter effect Of course, the traditional "accelerator" model of investment forecasts that investment will be related to the growth rate in the economy, though here the direction of causation is the reverse 2 What government policies have been effective at correcting for these externalities, thereby encouraging more productivity growth? There is clear evidence that patent protection and R&D subsidies affect the amount of R&D activity Tax policy can also be used to affect the amount of entrepreneurial activity more broadly For example, Gentry and Hubbard (2000) provide evidence that a progressive personal tax structure discourages risk-taking Gordon (1998) shows that the option to incorporate means that a low corporate tax rate relative to personal tax rates encourages risk-taking Cullen and Gordon (2002) explore the many potential effects of the tax system on entrepreneurial activity, and find strong empirical support for these tax effects using U.S individual income tax return data during 1964-93 If entrepreneurial activity is an important source of economic growth, as argued by Schumpter (1942), then these same characteristics of the tax law should also generate a higher growth rate The objective of the next section is to enumerate these and other ways in which taxes can affect the growth rate The main objective of the paper is then to test for these effects of the tax structure on the economic growth rate, using both cross-sectional and time-series information about country growth rates between 1970-97 As seen in section 2, the theory suggests a particular focus on the corporate tax rate, since the net effects of personal income tax rates are less clear.5 The empirical strategy is described in section 3, and the data and regression results are discussed in sections and While our paper finds that various measures of personal tax rates are not significantly associated with economic growth, we find a Even if high personal tax rates may encourage entrepreneurial activity, they may be detrimental to economic growth for many other reasons significant effect of corporate tax rates on economic growth, even after controlling for other determinants/covariates of economic growth The estimated effect is quite similar in the cross-sectional and time-series estimates, and with or without fixed effects in the timeseries specification Any inference that this effect of the corporate tax rate is due to effects on entrepreneurial activity of course is speculative Consistent with this interpretation, however, we provide evidence that a low corporate rate leads to a fall in personal income tax revenue, in spite of the higher growth rate We presume this occurs because people reduce their time as employees, where income is subject to the personal tax, and instead become entrepreneurs, generating corporate tax revenue and perhaps personal tax losses We conclude the paper with a summary and discussion of policy implications in section Taxes and Economic Growth: Theory Past research has enumerated a wide variety of ways in which the tax structure can affect observed economic growth rates In this section, we summarize these effects, focusing in turn on particular subsets of this literature Since the objective here is to motivate the empirical work, we focus on those effects that can be measured given the limited information we have about tax structures in a large panel data set of countries Taxes and factor accumulation In a neoclassical setting, growth simply depends on the accumulation of physical and human capital In the long-run, any given tax structure generates an equilibrium capital/labor ratio and an equilibrium level of education per worker Any further growth in per-capita output simply arises from an exogenous rate of technical change There should be no permanent effects of the tax structure on the growth rate in per capita output, regardless of the size of the misallocations generated by the tax structure Changes in tax policy, however, can generate changes in these equilibrium values, generating transitory growth effects These transition periods can be measured in decades, however An increase in the years of education chosen by new entrants to the labor force, for example, will have fully changed the average education for the labor force as a whole only after the first entrants following the policy change have reached retirement age Tax effects on the equilibrium capital stock can also take some period of time to be felt, due to adjustment costs to new investment in an open economy or due to the limited elasticity of savings rates in a closed economy What changes in tax policy then generate such increases in investment in physical and human capital? As seen in Hall and Jorgenson (1967) and much subsequent literature on taxes and rates of capital investment, low current effective tax rates on new investment suggest faster short-run growth, due to an investment boom in response to the temporarily lower tax rates Our best available proxy for this is periods with a lower corporate income tax rate Tax effects on investment in human capital are more complicated Trostel (1993) demonstrates that a constant labor income tax rate does not affect educational incentives per se, since the government then shares equally in the foregone earnings and the future return from education But, as Heckman et al (1998) emphasize, a progressive labor income tax discourages education, since the taxes saved while in school are then more than offset in present value by the future taxes due on the resulting extra earnings In addition, however, any tax on the return to savings lowers the individual’s discount rate, leading to an increase in education Furthermore, school expenditures are one of the largest uses of public funds, so that higher tax rates provide the resources for more education Forecasted effects of the personal income tax on education are then not clear cut In the empirical work, we control directly for rates of school attendance, so that the estimated effects of the tax structure should not include effects on rates of education Growth rates can also be higher during periods when public infrastructure increases relative to other factor inputs This should occur when government revenue is unusually high We will control for government revenue relative to GDP to capture such effects In addition, if tax policy is used to respond to business-cycle fluctuations, this could also induce a short-run correlation between tax rates and the growth rate To try to avoid any short-run business-cycle effects, we will focus on the links between tax rates and average growth rates over a longer period of time so that these short-run effects will tend to average out For example, with a progressive tax structure, marginal tax rates automatically fall during a recession The correlation between the level of tax rates and growth is less clear, however 6 Taxes in an endogenous growth framework The more recent endogenous growth literature provides models forecasting permanent growth, even with a stable tax structure, due to externalities generated through the accumulation of physical or human capital While effects on growth can be permanent, the key issue remains the current incentives to investment in physical or human capital During periods of greater incentives, growth rates should be faster We will not be using a long enough time period to judge whether effects on growth die out after perhaps several decades (as in the neoclassical model), or are permanent as in an endogenous growth setting Taxes and rates of technical change Much earlier than this endogenous growth literature, Schumpeter (1942) emphasized the role of entrepreneurial activity in generating new ideas that raise productivity Here, rather than investments in physical or human capital per se generating growth, explicit investments by entrepreneurs in the creation of new ideas generate growth How does the tax structure affect the rate of entrepreneurial activity, and so the rate of creation of new ideas? There is now a recent literature investigating this question.7 The paper by Cullen and Gordon (2002) provides the most general analysis so far, and shows that there are several possible routes through which taxes can affect the amount of entrepreneurial risk-taking To begin with, there is a tax encouragement to being self- See, for example, Carroll et al (1998, 2000), Gordon (1998), Gentry and Hubbard (2000), and Cullen and Gordon (2002) 7 employed when the effective tax rate on business income is less than the tax rate on wage and salary income This would occur to the extent that the corporate tax rate is below marginal personal tax rates Risk-taking per se is affected by the tax structure to the extent that profits and losses are taxed at different marginal tax rates.8 If entrepreneurs can shift the organizational form of their business ex post, or at least shift income and losses flexibly between the corporate and personal tax base, then any difference between personal and corporate tax rates generates a subsidy to risk-taking In particular, when personal tax rates are above the corporate rate, entrepreneurs should report any losses as noncorporate losses, and any profits as corporate income, thereby facing a subsidy to risk-taking to the extent that the corporate tax rate is below personal tax rates.9 As emphasized by Gentry and Hubbard (2000), to the extent that businesses always remain noncorporate, then risk-taking is discouraged to the extent that the personal tax schedule is progressive Here, losses push the entrepreneur into a low tax bracket, saving little in taxes, while profits push the entrepreneur into a high marginal tax bracket Finally, if nontax factors imply that the firm should always be corporate, then no-loss-offset provisions in the corporate tax become key Given no-loss-offset, the higher the corporate tax rate the greater the net discouragement to risk-taking If the tax rates on profits and losses are the same, then the tax structure is simply equivalent to having more outside shareholders If the corporate tax rate were above personal tax rates, then losses should be taken under the corporate tax But if the firm faces binding no-loss-offset provisions, then its marginal tax rate is zero, eliminating any potential subsidy to risk-taking 8 Another tax advantage of entrepreneurial activity is that tax evasion is much easier for the self-employed than for employees This provides a further reason why high personal tax rates, affecting employees much more than the self-employed, can encourage entrepreneurial activity When entrepreneurs are risk averse, taxes also provide risk-sharing with the government If the financial markets are not effective at sharing risks efficiently, at least for small firms, then entrepreneurial activity can be an increasing function of overall effective tax rates No mention has been made of value-added taxes so far In theory, a VAT is a proportional tax on net output, so should be neutral by the above arguments However, in practice a firm with negative value-added, due to an unsuccessful project, will commonly have a hard time receiving the implied tax rebates from the government To the extent there is no-loss-offset in practice under the VAT, so that favorable outcomes are taxed while unfavorable outcomes not save on taxes, a higher VAT rate should also discourage risktaking Other government policies affecting rates of entry Many other government policies can affect the rate of entrepreneurial activity To isolate the effects of taxes per se, we will want to control for other relevant policies Some direct policies, such as R&D subsidies, may be effective at stimulating innovation However, we have not been able to find any information on the size of such R&D subsidies for our sample In many countries corruption, i.e the need to pay endless bribes to government officials to obtain necessary licenses, discourages small business activity Governments can also use tariff and nontariff barriers to protect favored existing industries, thereby putting other industries at a competitive disadvantage Governments on occasion use inflation as an important source of finance, raising the costs to new entrants that rely more heavily on cash transactions, while leaving relatively unaffected the costs faced by large existing firms that normally rely more heavily on financial intermediaries The greater these barriers to entry, the lower the amount of entrepreneurial activity and presumably the slower the growth rate In an attempt to capture the effects of taxes per se, we include some available controls for these other policies in the empirical work Endogenous government policies One unavoidable caveat in any study looking at the effects of government policies on growth is the possibility of incidental or reverse causation Certainly tax structures in richer countries differ from those in poorer countries, with more reliance on the personal income tax and a tendency to higher tax rates in richer countries.10 During periods of high growth, there will be heavy demand for new infrastructure investment, suggesting high tax rates generally to finance these investments Certainly, there is no clear case dismissing a possible effect from high growth rates to tax rates, and government policies more generally This implies a correlation between tax rates and the level of income, though not necessarily with growth rates 10 10 0.023   (0.005) + ** 0.008  t (0.003)* These estimates show that the corporate tax rate is associated with an increase in personal income tax revenue, providing evidence that individuals report more wage and salary income when the corporate tax rate is higher One explanation is that fewer people go into business for themselves when the corporate tax rate is higher, for any given personal tax rate Conclusions This paper finds that the corporate tax rate is significantly negatively correlated with economic growth in a cross-section data set of 70 countries during 1970-1997, controlling for many other determinants/covariates of economic growth We also find that other tax variables, including the average tax rate on labor income and Koester and Kormendi’s effective overall marginal tax rates, are not significantly associated with economic growth rates The estimates suggest that cutting the corporate tax rate by 10 percentage points can increase the annual growth rate by around 1.1% In fixed-effects estimates using a panel data set constructed for the same overall time period, estimated effects are larger, with the same tax change implying an increase in the annual growth rate of around 1.8% An open question is the reason for this negative effect of the corporate tax rate on growth We report evidence that lower corporate tax rates lead to lower personal tax revenue, a result consistent with a lower corporate tax rate encouraging more entrepreneurial activity However, the aggregate information reported here is insufficient to draw a definitive conclusion about the precise source of the links between tax rates and 21 growth These results certainly suggest that the growth effects of tax reforms, as well as the more standard efficiency and equity effects in a static context, merit serious consideration These growth effects plausibly reflect a correction for the positive externalities arising from innovative activity, externalities neglected in standard tax analysis References Acemoglu, Daron; Johnson, Simon; and Robinson, James A.“The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review 91(5), pp 1369 1401, 2001 Barro, Robert J Determinants of Economic Growth: A Cross Country Empirical Study Cambridge: NBER 1996 Benhabib, Jess; Spiegel, Mark M “The Role of Human Capital in Economic Development: Evidence from Aggregate Cross Country Data” Journal of Monetary Economics; 34(2), pp 143 73, 1994 Carroll, Robert et al “Income Taxes and Entrepreneurs’ Use 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Ecuador 24%: Chile 29%: Switzerland 30-34% 30%: Bolivia, El Salvador, Korea, Rep., Paraguay, Thailand, Uruguay (8 countries) 33%: Argentina, Senegal 35-39% 35%: Botswana, Brazil, Indonesia, Philippines, Spain (7 countries) 36%: Italy 39%: Cameroona) 40-44% 40%: China, Colombia, Cote d'Ivoire, Denmark, Egypt, Arab Rep., (17 countries) Honduras, Israel, Malaysia, Nicaragua, Portugal, Singapore, Turkeyb) 42%: Guatemala, Mexico, Finland 43%: Japan, Netherlands 45-49% 45%: Belgium, Jamaica, Kenya, New Zealand, Nigeria, Sierra Leone, (16 countries) Trinidad and Tobago, United Kingdom, Zimbabwec) 46%: Australia, Canada, Dominican Republic, United States 48%: Morocco 49%: Congo, Rep., Greecea) 50-54% 50%: Congo, Dem Rep., Costa Rica, France, Haiti, Ireland, Malawi, (12 countries) South Africa, Sri Lanka, Venezuelad), Zambiac) 51%: Norway 52%: Sweden Above 55% 55%: Austria, Guyana, India, Pakistan, Perua) (6 countries) 60%: Ghanab) Note: a) tax rates in 1988 b) tax rates in 1980 c) tax rates in 1981 25 d) tax rates in 1986 Table Summary Statistics for Growth Regressions Variables n Unit and Sources top corporate tax rates, 1980-89 %, OTPR top corporate tax rates, 1990-97 %, OTPR top personal tax rates, 1980-89 %, OTPR average overall tax rate, 1970-79 %, WDI Koester and Koremendi tax rates, 1970-79 %, authors' calculation using WDI average tariff rates, 1995 %, WDI, Lee and Azfar commodity tax rates, 1999 %, PricewaterCoopers, Ernst and Young growth rate of GDP per capita, 1970-1997 annual %, WDI GDP per capita, 1997 1995 constant US $, WDI GDP per capita, 1970 1995 constant US $, WDI primary school enrollment rates, 1970 %, WDI average trade openness, 1970-74 fraction, Sachs and Warner ICRG's corruption & bureaucrats' quality, 1985-9 0-6, ICRG population growth rates, 1970-1997 %, WDI 26 Mean st dev Min Max 70 41.3 8.2 17.7 60 69 34.8 6.5 14 50 66 52.0 14.9 79.5 66 18.4 8.7 42.4 63 21.4 10.0 6.6 51.7 58 6.7 6.3 -5.8 29.1 67 14.2 6.1 25 70 1.7 2.1 -4.2 6.9 70 9,809 12,290 113 44,300 70 5,489 7,222 120 35,424 70 90.4 22.4 34.8 122.8 70 0.4 0.5 70 3.5 1.5 0.6 70 1.8 1.0 0.2 3.7 average inflation rates, 1970-94 70 %, WDI 27 78 225 1231 Table Baseline Cross-sectional Growth Regression Results, OLS and IV Dependent variable is the growth rate of GDP per capita from 1970 to 1997 Estimation method corporate tax rates, 1980-89 log of GDP per capita, 1970 (1) (2) (3) (4) (5) (6) (7) OLS OLS OLS OLS OLS IV IV -0.064 -0.069 -0.057 -0.068 -0.073 -0.109 -0.084 (0.030)* (0.023)* (0.025)** (0.029)* 1970 Average trade openness, 1970-4 Average ICRG index, 1985-89 population growth rate, 1970-97 Average inflation rate, 1970-97 (0.039)** (0.044)+ -1.216 -0.867 -1.091 -0.998 -1.269 -1.444 (0.265)** (0.281)** (0.281)** Primary school enrollm’t rate, (0.035)* (0.422)* (0.264)** (0.280)** 0.036 0.023 0.032 -0.005 0.036 0.033 (0.010)** (0.009)* (0.010)** (0.017) 1.285 0.762 1.459 2.162 1.004 1.242 (0.567)* (0.581) (0.610)* (0.631)** (0.603) (0.609)* 0.725 0.671 0.766 0.163 0.748 0.765 (0.010)** (0.010)** (0.204)** (0.195)** (0.205)** (0.288) (0.218)** (0.218)** -0.312 -0.031 -0.496 -0.117 -0.556 -0.751 (0.295) (0.314) (0.467) (0.298)+ -0.003 -0.003 -0.003 0.001 -0.003 -0.003 (0.001) (0.005) (0.001)** (0.001)** 0.012 -0.020 (0.017) (0.020) ** Continent Dummy (0.286) (0.001) ** (0.001) ** (0.307)* -2.283 - sub-Saharan Africa - OECD countries (0.741)** - Latin America -1.164 -0.897 (0.896) (0.673)+ - Asia 0.698 (0.797) Dummy for OECD countries -3.635 (2.689) OECD dummy  corporate tax 0.060 rates top personal tax rates, 1980-89 (0.063) (top / average personal tax rates), 0.000 1980-89 Average overall tax rate, 1970-79 -0.021 (0.000) (0.145) Government expenditure / GDP, 0.030 1970-79 (0.110) 28 Koester & Koremendi tax rates, 0.020 1970-79 Average tariff rates, 1995 (0.056) Commodity tax rates, 1999 -0.038 0.008 (0.043) (0.044) Observations Adjusted R-squared 70 70 70 70 44 68 64 0.051 0.469 0.619 0.476 0.411 0.526 0.551 Standard errors in parentheses + significant at 10%; * significant at 5%; ** significant at 1% Constant term is included, but not reproted Table Panel Growth Regression Results Dependent variable is growth rate of GDP per capita for 5-year periods (1) Estimation method corporate tax rates a (2) OLS (3) (4) Robust Median Fixed Effect (5) (6) country country dummies dummies + IV + IV -0.058 -0.047 -0.047 -0.082 -0.171 -0.182 (0.019)** (0.019)* (0.027)+ (0.025)** (0.034)** (0.046)** personal tax rates a 0.001 (0.026) GDP per capita a -1.078 -1.027 -1.126 -4.412 -4.321 -5.247 (0.223) (0.216) (0.312) (0.985) (1.067) (1.282)** 0.026 0.028 0.025 0.025 0.017 0.031 (0.011) (0.011) (0.016) (0.020) (0.020) (0.023) ** primary school enrollment a average openness b average ICRG index b population growth rates b * ** ** ** ** ** 2.672 2.586 2.854 2.051 1.358 1.352 (0.480) (0.465) (0.666) (0.675) (0.713) (0.772)+ ** ** ** ** + 0.527 0.342 0.284 0.316 0.211 -0.115 (0.201) + (0.195) (0.280) (0.477) (0.523) (0.586) -0.730 -0.840 -1.021 -1.311 -1.086 -0.952 (0.227) (0.220) (0.320) (0.434) (0.460) (0.523)+ ** ** ** 29 ** ** * average inflation rates b Constant -0.002 -0.002 -0.002 -0.001 -0.001 -0.001 (0.000) (0.000) (0.000) (0.000) (0.000) (0.000)** ** ** ** 7.719 7.579 8.821 (2.030)** (1.967)** (2.844)** Observations 270 270 Number of countries 77 77 0.323 0.326 R-squared ** **    270 270 245 221 77 77 68 67 0.293 0.651 0.665 Standard errors in parentheses + significant at 10%; * significant at 5%; ** significant at 1% Note: There are periods in the panel: 1980-4, 1985-9, 1990-4, and 1995-7 a These variables take values at the initial year b These variables are growth rates or average values calculated for the corresponding period 30 Table Summary Statistics for Tax Revenue Regressions, n=938, number of countries=87 Variables Unit and Sources mean st dev top corporate income tax rate top individual income tax rate personal income tax revenue / GDP GDP per capita %, OTPR %, OTPR %, OTPR, GFS 1995 constant US$, WDI 48.31 39.04 4.70 11,038 31 16.84 8.17 15 4.16 11,447 217 max 93 75 20.86 45,888 Table A1: Raw Data Cor Cor ICR Tx Tx Ind Total KK GDP GDP GDP R9 TxR8 TxR9 TxR TxR TxR TxR gr 97 70 　 　 Country Code R8 Argentina Australia Austria Belgium Bolivia Botswana Brazil Cameroon Canada Chile China Colombia Congo, Dem Rep Congo, Rep Costa Rica Cote d'Ivoire Denmark Dominican Republic Ecuador Egypt, Arab Rep El Salvador Finland France ARG AUS AUT BEL BOL BWA BRA CMR CAN CHL CHN COL ZAR COG CRI CIV DNK DOM ECU EGY SLV FIN FRA 33.0 45.9 52.5 45.3 21.6 36.0 34.5 39.0 44.8 39.7 44.5 36.6 50.0 49.0 47.0 40.0 44.0 42.8 20.0 38.4 31.5 39.0 47.6 　 　 26.6 36.8 32.0 39.3 14.0 27.5 25.6 39.0 38.0 29.8 32.5 31.3 50.0 48.5 30.0 36.3 36.3 31.3 24.4 40.0 26.3 24.8 33.8 　 Ind Com 　 44.0 30.4 57.2 47.1 60.8 50.0 71.1 55.0 23.8 11.9 58.8 38.1 52.2 26.9 60.0 60.0 38.4 29.0 56.0 47.9 45.0 45.0 45.0 31.3 60.0 55.0 65.0 50.0 47.5 25.0 20.6 9.5 52.3 65.8 72.7 46.9 42.0 25.0 61.3 54.5 60.0 35.0 50.3 39.4 59.2 55.0 　 21.0 10.0 20.0 21.0 13.0 10.0 17.0 17.0 7.0 18.0 17.0 16.0 18.7 24.0 13.0 20.0 25.0 8.0 10.0 10.0 13.0 22.0 20.6 Trd 　 　3.0 11.2 5.4 6.4 6.5 9.6 -1.3 3.4 -1.8 10.1 18.4 28.5 37.8 20.4 12.5 2.8 0.4 3.6 -5.8 6.7 15.0 3.6 -1.4 6.5 6.5 32 　 15.6 20.8 33.8 47.5 16.3 0.0 13.9 16.5 23.2 18.1 8.9 8.2 19.5 15.8 9.0 6.6 25.1 17.7 30.6 13.8 10.4 26.2 10.3 26.1 33.6 28.1 9.8 8.2 26.8 12.2 13.2 23.9 26.7 38.8 0.72 8,235 1.83 22,054 2.39 30,103 2.24 28,333 0.36 944 6.88 3,555 2.41 4,555 0.82 632 1.85 20,467 2.93 5,151 6.63 679 2.14 2,440 -4.17 113 0.96 846 1.47 3,495 -0.70 769 1.58 35,956 2.59 1,744 2.21 1,588 3.15 1,103 0.18 1,709 2.31 27,822 1.93 27,491 　 6,792 13,520 15,890 15,563 857 590 2,396 508 12,488 2,359 120 1,376 356 654 2,355 928 23,534 875 879 477 1,626 15,024 16,398 Schl years 70 　 105 115 104 108 78 63 119 92 101 104 91 101 95 121 110 59 96 98 99 68 84 82 117 open 　 0.00 1.00 1.00 1.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 1.00 0.00 0.00 1.00 1.00 G Pop 85-9 gr 　 3.5 5.5 5.2 5.7 1.2 4.0 4.0 3.0 6.0 3.0 3.3 3.5 0.9 2.5 4.0 3.5 6.0 3.0 3.0 2.5 1.5 6.0 5.7 　 1.48 1.46 0.31 0.21 2.29 3.31 2.00 2.79 1.28 1.61 1.52 2.14 3.14 2.95 2.71 3.70 0.26 2.20 2.59 2.25 1.86 0.41 0.50 Infla 　 339.8 7.3 4.4 5.0 503.0 11.3 683.3 8.8 5.7 73.9 11.3 22.2 1231.2 8.8 18.4 8.5 6.4 15.8 27.2 12.5 13.7 7.0 6.4 Ghana GHA 60.0 43.1 10.0 2.0 10.3 7.0 -0.72 391 475 62 0.00 2.3 2.77 40.0 Table A1 Raw Data – continued Cor Cor ICR Tx Tx Ind Total KK GDP GDP GDP R9 TxR8 TxR9 TxR TxR TxR TxR gr 97 70 　 　 Country Code R8 Greece Guatemala Guyana Haiti Honduras Hong Kong, China India Indonesia Ireland Israel Italy Jamaica Japan Kenya Korea, Rep Malawi Malaysia Mexico Morocco Netherlands New Zealand GRC GTM GUY HTI HND HKG IND IDN IRL ISR ITA JAM JPN KEN KOR MWI MYS MEX MAR NLD NZL 46.9 42.8 55.0 36.3 40.0 17.7 54.0 39.0 48.2 40.0 31.6 41.4 41.7 45.0 30.0 48.5 39.5 40.1 46.4 43.9 43.9 　 　 40.4 30.3 46.3 35.0 32.5 17.3 43.1 33.1 40.3 36.3 36.3 33.0 38.3 37.0 31.3 39.5 32.6 34.6 37.5 35.4 33.0 　 Ind Com 　 59.1 45.6 45.2 30.3 55.0 39.9 35.0 30.0 40.0 40.0 21.7 23.1 57.8 43.8 40.0 33.1 60.4 50.1 50.0 50.0 64.7 50.8 46.9 28.0 74.9 50.0 62.0 40.0 60.1 46.3 49.0 39.5 52.5 34.4 53.0 35.0 56.8 48.8 72.0 60.0 57.8 33.0 　 18.0 10.0 0.0 10.0 0.0 4.0 10.0 21.0 17.0 20.0 15.0 5.0 16.0 10.0 10.0 15.0 20.0 17.5 12.5 Trd 　 6.5 　 29.1 12.3 6.5 6.5 6.4 5.4 0.9 10.6 9.0 12.9 0.3 6.5 5.4 33 　 20.8 8.8 28.1 9.5 12.0 25.0 11.0 37.8 9.0 15.7 27.7 40.8 25.6 25.3 10.4 15.8 13.5 12.9 18.6 11.3 18.2 42.4 27.9 11.4 19.9 28.9 51.7 29.9 31.2 9.2 20.1 16.0 17.5 23.8 14.8 24.3 46.6 33.1 13.9 1.71 11,905 0.82 1,495 0.79 951 -0.93 366 0.72 726 5.23 23,531 2.49 412 5.11 1,140 3.79 21,580 2.39 16,398 2.26 19,652 -0.18 1,844 2.87 44,206 1.56 344 6.31 11,913 1.16 165 4.79 4,839 1.49 3,419 1.66 1,326 1.84 28,462 1.02 16,697 　 7,540 1,200 769 471 598 5,936 212 297 7,898 8,675 10,744 1,937 20,577 226 2,285 121 1,367 2,292 850 17,385 12,695 Schl years 70 　 107 58 98 53 87 117 78 80 107 96 109 119 100 62 103 37 89 106 51 102 110 open 　 1.00 0.00 0.00 0.00 0.00 1.00 0.00 0.80 1.00 0.00 1.00 0.80 1.00 0.00 1.00 0.00 1.00 0.00 0.00 1.00 0.00 G Pop 85-9 gr 　 3.7 1.5 1.0 0.9 1.7 4.4 3.5 0.6 5.0 4.5 4.0 2.5 5.5 3.5 3.0 3.0 3.9 2.8 2.9 6.0 6.0 　 0.66 2.61 0.20 1.89 3.12 1.87 2.11 1.97 0.81 2.53 0.25 1.16 0.71 3.35 1.36 2.86 2.58 2.32 2.17 0.68 1.07 Infla 　 15.1 12.3 7.6 12.6 11.2 8.3 8.7 11.9 8.6 61.5 9.7 21.1 4.6 13.9 10.2 22.8 4.4 36.0 7.0 4.3 9.1 Nicaragua Nigeria Norway NIC NGA NOR 42.9 43.5 51.0 31.0 50.0 35.0 65.5 36.4 41.5 31.0 40.6 14.3 15.0 5.0 23.0 1.9 11.8 15.2 30.8 5.7 12.6 18.0 32.6 -2.63 -0.14 3.17 434 255 36,557 890 265 15,760 78 44 89 0.00 0.00 1.00 3.4 2.1 5.5 2.97 2.99 0.47 1148.2 24.2 6.7 Table A1 Raw Data – continued Cor Cor ICR Tx Tx Ind Total KK GDP GDP GDP R9 TxR8 TxR9 TxR TxR TxR TxR gr 97 70 70 　 　 　 274 　36 1,064 2,364 866 5,009 620 285 5,446 4,100 8,491 346 19,271 35,424 754 2,760 1,635 11,835 16,976 4,024 108 107 108 95 39 35 105 92 123 99 94 80 81 109 107 104 88 112 Country Code R8 Pakistan Paraguay Peru Philippines Portugal Senegal Sierra Leone Singapore South Africa Spain Sri Lanka Sweden Switzerland Thailand Trinidad and Tobago Turkey United Kingdom United States Uruguay PAK PRY PER PHL PRT SEN SLE SGP ZAF ESP LKA SWE CHE THA TTO TUR GBR USA URY 55.5 30.0 47.5 35.0 35.3 33.0 45.0 37.9 45.6 34.2 50.0 45.2 29.0 31.0 44.5 43.4 44.8 43.0 28.0 　 　 　 Ind Com 　 　 48.6 30.0 30.6 35.0 37.1 35.0 53.3 20.0 55.8 42.0 60.8 63.9 38.8 11.3 34.5 35.0 40.0 49.3 15.0 10.0 18.0 10.0 17.0 20.0 28.8 42.0 35.0 40.0 30.3 45.0 30.0 39.8 35.5 33.5 34.6 30.0 39.9 48.9 64.0 31.3 43.9 55.6 79.5 19.3 60.6 65.5 54.3 60.0 48.4 0.0 31.9 12.1 41.5 36.6 52.5 40.0 35.9 0.0 3.0 14.0 16.0 12.5 25.0 7.5 10.0 15.0 15.0 17.5 0.0 23.0 Trd 　 　 -3.8 5.3 13.1 20.0 6.5 11.3 10.2 12.1 11.2 21.0 16.3 14.3 15.7 19.2 18.7 18.3 29.0 15.3 11.4 30.8 13.7 30.2 17.2 20.0 -2.0 6.6 8.1 6.5 19.7 6.2 0.0 3.3 4.8 13.3 6.4 5.9 10.2 34 　 12.5 11.7 14.3 14.3 23.5 21.8 15.1 17.9 21.5 23.6 23.9 35.4 25.1 12.8 27.4 14.9 27.8 19.0 20.9 2.27 502 2.06 1,843 0.07 2,406 1.08 1,157 3.18 11,664 -0.35 564 -2.09 161 5.91 25,672 -0.13 3,956 2.33 15,827 3.03 774 1.40 28,024 0.83 44,300 5.20 2,963 1.81 4,484 2.42 3,120 2.03 20,339 2.03 29,191 1.62 6,217 Schl years open 　 0.00 0.00 0.00 0.00 1.00 0.00 0.00 1.00 0.00 1.00 0.00 1.00 1.00 1.00 0.00 0.00 1.00 1.00 0.00 G Pop 85-9 gr Infla 　 　 9.9 　 2.5 0.6 2.5 1.5 3.7 3.0 2.5 5.2 5.7 4.0 3.0 6.0 6.0 3.7 2.7 2.9 5.9 5.5 2.5 2.81 2.90 2.30 2.50 0.35 2.81 2.16 2.26 2.29 0.56 1.48 0.35 0.46 1.90 1.02 2.14 0.22 1.05 0.56 16.5 469.5 13.1 14.4 7.5 40.3 3.8 11.8 10.2 10.6 7.1 3.8 6.4 10.2 48.9 8.3 5.5 58.6 Venezuela, RB Zambia Zimbabwe VEN ZMB ZWE 50.0 47.1 45.5 36.5 45.0 38.8 78.3 43.4 46.5 35.3 44.4 51.3 15.5 17.5 15.0 13.2 17.1 22.4 15.8 0.0 35 18.2 19.9 7.8 -0.67 -2.01 0.33 3,605 405 678 4,318 699 621 97 90 70 0.00 0.00 0.00 3.0 2.0 3.3 2.84 3.06 3.15 25.4 82.8 14.1 ... “Marginal Income Tax Rates and Economic Growth in Developing Countries,” European Economic Review 37, pp 409 17, 1993b Engen, Eric M and Jonathan Skinner “Fiscal Policy and Economic Growth, ” NBER... Bradford and Lawrence H Summers, “Equipment Investment and Economic Growth, Quarterly Journal of Economics 106, pp 445 502, 1991 Dollar, David and Aart Kraay “Institutions, trade, and growth, ”... generating corporate tax revenue and perhaps personal tax losses We conclude the paper with a summary and discussion of policy implications in section Taxes and Economic Growth: Theory Past research