Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298334 
Year of Publication: 
2023
Series/Report no.: 
EERI Research Paper Series No. 05/2023
Publisher: 
Economics and Econometrics Research Institute (EERI), Brussels
Abstract: 
What is the impact of taxation on growth? Is it supported by specific taxes and harmed by others? We use an error correction model to study the relationship between the tax composition and GDP growth in the EU27 Member States over the period 1995-2019. Under the constraint of revenue-neutrality, we find that, in the long-run, shifting tax away from labour (personal income tax) is growth-enhancing. In addition, growth is positively associated with a higher share of corporate income tax and consumption taxes in the total tax mix. However, evidence for property taxation is contrary to our expectation. We find a negative link between the share of property taxes and growth. Expectedly, increasing the overall tax burden has a negative impact on growth in the long-run. Results are robust to different model specifications. Supplementary evidence based on a computable general equilibrium model confirms that de-taxing wages for employees and lowering labour costs for employers would push output.
Subjects: 
EU27
growth
tax mix
personal income tax
corporate income tax
consumptiontaxes
environmental taxes
property taxes
labour tax shift
Computable General Equilibriummodel
JEL: 
H2
047
C23
C68
Document Type: 
Working Paper

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