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Macroeconomic consequences of taxation in the '80s

Newell, Andrew and Symons, James (1993) Macroeconomic consequences of taxation in the '80s. CEP Discussion Papers, 121. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

During the 1980s the OECD countries experienced divergent trends in taxation. In some countries governments took to cutting tax rates, especially income tax rates, influenced perhaps by the supply-side economists. In other countries, tax rates continued to rise as had generally been the case through the 1970s. In this paper we investigate the effects of this divergence on macroeconomic performance, measured various ways, across countries. From a conventional, neo-classical, open economy setting, we generate a number of predictions for the consequences of tax rate changes, which we subsequently investigate empirically. We find robust and important effects suggesting that a large proportion of the divergence of economic performance through the 1980s can be explained by the supply side effects of tax policy. We subsequently investigate why tax policy diverged, and find that the state of public finances at the beginning of the decade, as well as changes in the political persuasion of government were both important influences on the direction of taxation policy.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 1997 The Authors
Library of Congress subject classification: H Social Sciences > HJ Public Finance
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 121
Date Deposited: 20 Aug 2008 09:53
URL: http://eprints.lse.ac.uk/20994/

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