Tax policy analysis

Tax Policy Reform and Economic Growth

In series:OECD Tax Policy Studiesview more titles

Published on November 03, 2010

In the wake of the recent financial and economic crisis, many OECD countries face the challenge of restoring public finances while still supporting growth. This report investigates how tax structures can best be designed to support GDP per capita growth.  The analysis suggests a tax and economic growth ranking order according to which corporate taxes are the most harmful type of tax for economic growth, followed by personal income taxes and then consumption taxes, with recurrent taxes on immovable property being the least harmful tax. Growth-oriented tax reform measures include tax base broadening and a reduction in the top marginal personal income tax rates. Some degree of support for R&D through the tax system may help to increase private spending on innovation. But implementing pro-growth tax reforms may not be easy. This report identifies those public and political economy tax reform strategies that will allow policy makers to reconcile differing tax policy objectives and overcome obstacles to reform. It stresses that with clear vision, strong leadership and solid tax policy analysis, growth-oriented tax reform can indeed be realised.


Executive Summary
Annex A
Annex B
Taxation and Economic Growth Recommendations and Reforms in OECD Countries2 chapters available
Growth-oriented Tax Policy Reform Recommendations
How Do Trends in the Composition of Tax Receipts and in Tax Rates Compare with the “Tax and Growth” Recommendations?
Making Growth-oriented Tax Reforms Happen4 chapters available
Obstacles to Fundamental Tax Reforms
Strategies for Successfully Implementing Growth-oriented Tax Reforms
Tax Design Considerations
Taxation, Economic Growth and Sustainable Tax Revenues
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Policy Brief

Few people like to pay tax and even fewer like to see their existing tax burdens rise further. Many governments have thus found that the most propitious time for tax reform is when the state public finances allows an overall reduction in taxes or, failing this, a revenue-neutral reform that allows some compensating cuts for politically sensitive groups of taxpayers. At present, many countries are not in such a fortunate position. The need to undertake fiscal consolidation strategies over the medium term leaves little room for manoeuvre to finance any tax reductions. In many cases, countries’ assessment of the appropriate balance between cutting public expenditure and raising taxes means that tax revenues will need to be increased.