Taxes, public spendings and economic growth in OECD countries

Bhattarai, Keshab

Abstract

Impacts of taxes and spending on accumulation and growth are assessed theoretically using neoclassical, optimal growth and overlapping generation models. Empirical supports based on rank correlation and panel regression analysis suggest that countries with higher tax GDP ratio generally had lower growth rates compared to those with lower ratio in OECD when examined the period from 1991 to 2006. The country and time specific factors seem to play more prominent role than the taxes. Country specific differences have their historical roots as collective preferences, constraints on sizes and modalities of public goods and services and willingness to pay for them, the optimal size of private sectors and the desire for economic freedom are influenced by those factors. Time specific factors owe to international business cycles. Real factors including the rate of capital formation, human capital and technology are more important for growth than the tax rates as higher tax rates are associated with higher rate of public services. Negative effects of taxes are often compensated by positive effects of public goods, thus, leaving a very small net negative impact on growth. © Keshab Bhattarai, 2010.

Citation

Bhattarai, K. (2010). Taxes, public spendings and economic growth in OECD countries. Problems and Perspectives in Management, 8(1), 14-30

• Journal Article Type: Article
• Online Publication Date: Feb 23, 2010
• Publication Date: 2010-01
• Deposit Date: Feb 16, 2021
• Publicly Available Date: Feb 18, 2021
• Journal: Problems and Perspectives in Management
• Print ISSN: 1727-7051
• Publisher: Business Perspectives
• Peer Reviewed: Peer Reviewed
• Volume: 8
• Issue: 1
• Pages: 14-30
• Keywords: Taxes; Spending; Growth; OECD
• Public URL: https://hull-repository.worktribe.com/output/3564541
• Publisher URL: https://businessperspectives.org/journals/problems-and-perspectives-in-management/issue-29/taxes-public-spendings-and-economic-growth-in-oecd-countries