A note on taxation and economic growth nexus

We examine the relationship between taxation and economic growth using several tax variables for a sample of OECD economies over the period 1980-2020. Our dynamic panel GMM threshold model follows the spirit of Seo and Shin (2016), hence we can trace nonlinearities in the taxation-growth nexus following recent theoretical developments. We unmask a statistically significant inverted 'U-shaped' relationship between effective tax rates and economic growth justifying a more efficient reformulation of public policy toward tax reforms. Further, the mixed evidence surrounding the effects of different tax indicators suggests that a one-size-fits-all approach may not be effective. Instead, tailored tax policies that account for the unique economic contexts of different countries, especially within the OECD framework, could lead to more effective economic outcomes.