Taxation Policies and Economic Growth

Taxation constitutes a central instrument of fiscal policy by which governments mobilise revenue to finance public expenditures and public goods, influence income distribution and steer macroeconomic outcomes. The structure and rates of taxation can affect incentives for labour supply, investment, innovation and consumption, thereby shaping the long-run trajectory of economic growth. Economic theory suggests that excessive levies on capital and labour may dampen investment and productivity, while well-designed consumption taxes can be relatively growth-neutral if base broadening and uniform rate structures are achieved. Empirical research spans diverse contexts, including developed and emerging economies, with panel data analyses and quasi-experimental designs exploring the link between direct taxes (such as personal and corporate income taxes) and indirect taxes (most notably value-added tax or VAT). Recent studies have emphasised heterogeneity across country groups, the roles of tax structure and administration, and the interaction of tax policy with sustainable development objectives. Policymakers face the challenge of balancing the revenue-raising imperative with the goal of fostering innovation, competitiveness and equitable growth, while adapting to demographic shifts and global capital mobility.

Research from Nature Portfolio

No recent Nature Portfolio content available.

Taxation Policies and Economic Growth publication trend

The graph below shows the total number of articles in taxation policies and economic growth across all publications each year (not limited to Nature Index journals).

Technical terms

Effective average tax rate: The ratio of total tax payments to a relevant measure of tax base (income, profits or consumption), reflecting overall tax burden.

Corporate income tax: A levy on company profits, designed to raise public revenue but potentially affecting investment incentives.

Value-Added Tax (VAT): An indirect consumption tax imposed at each stage of production and distribution, generally considered efficient if applied to a broad base.

Panel data regression: Econometric technique using longitudinal data across countries and time to estimate the impact of explanatory variables on growth.

Meta-regression: Statistical synthesis of results from multiple studies, controlling for methodological differences and publication bias to derive generalisable conclusions.

References

1. Impact of taxes on the 2030 agenda for sustainable development: Evidence from organization for economic co-operation and development (OECD) countries. Regional Sustainability (2023).
2. Impact of Direct Taxation on Economic Growth: Empirical Evidence Based on Panel Data Regression Analysis at the Level of Eu Countries. Sustainability (2023).
3. Do corporate tax cuts boost economic growth?. European Economic Review (2022).
4. Is capital taxation always harmful for economic growth?. International Tax and Public Finance (2019).
5. The value-added tax and growth: design matters. International Tax and Public Finance (2021).