Taxation, investment and growth

• Main Author: Xing, Jing
• Published: University of Oxford 2011
• Subjects: 336.2
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.560524

This thesis investigates empirically the effects of taxation policy on invest- ment and growth. Chapter 1 analyses whether there is any link between the structure of the tax system and the level of income per capita in the long run. Our specification closely follows that of Arnold et al. (2011), measuring tax structure using the shares of different taxes in total revenue. However, based on panel data for 17 OECD countries over the period 1970-2004, we do not find a robust ranking of different types of taxes in terms of their effects on the long-run level of income per capita, as this previous study suggested. In Chapter 2, we estimate the long-run elasticity of the capital stock with respect to the user cost of capital by combining industry-level panel data from the EU KLEMS database with tax variables provided by the Oxford University Centre for Business Taxation for 13 OECD countries over the period 1982-2007. Our estimated long-run user cost elasticity is significantly different from zero and close to -1, suggesting that aggregate investment is highly responsive to tax incentives summarised by the tax-adjusted user cost of capital. In Chapter 3, we estimate the long-run elasticity of capital with respect to the user cost using firm-level panel data from the Amadeus database for 9 countries over the period 1999-2008. Consistent with our findings in Chapter 2, we estimate a substantial long-run u~er cost elasticity which is significantly different from zero and close to -1. The main empirical results in both Chapters 2 and 3 are found to be robust to a wide range of econometric issues and different model specifications.