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<p>Compared to the economic effects of tax <i>rates</i>, those of tax <i>progressivity</i> have been both less studied and harder to estimate. In this paper, we show that estimating these effects requires a methodology that pays close attention to the dynamics of the relationship between tax progressivity and output. Using Local Projections and a dataset of 33 OECD economies since 1980, we show that tax progressivity affects the economy in a way that is broadly consistent with the predictions of a standard neoclassical growth model. An increase in tax progressivity is associated with a reduction in the economy’s growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust. Our findings also emphasize the importance of including both the tax rate and tax progressivity in the estimation: omitting either can lead to biased results.</p>

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Rethinking tax progressivity: a new look at its role in OECD economic growth

  • 期刊论文

  • 发表日期：

    2025年6月12日

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  • João Tovar Jalles,
  • Georgios Karras

摘要

Compared to the economic effects of tax rates, those of tax progressivity have been both less studied and harder to estimate. In this paper, we show that estimating these effects requires a methodology that pays close attention to the dynamics of the relationship between tax progressivity and output. Using Local Projections and a dataset of 33 OECD economies since 1980, we show that tax progressivity affects the economy in a way that is broadly consistent with the predictions of a standard neoclassical growth model. An increase in tax progressivity is associated with a reduction in the economy’s growth rate temporarily and the level of income per capita permanently. Both effects are sizable, statistically significant, and robust. Our findings also emphasize the importance of including both the tax rate and tax progressivity in the estimation: omitting either can lead to biased results.