Tax Discussion Series: Lifting the bucket
Lifting the Bucket: Tax policy and economic growth is the third paper in Maxim Institute’s Tax Discussion Series, a series that stems from a very basic question: “What is tax, and what is it for?” Through reviews of the relevant literature, the paper seeks to join up theory about the role of government and community, the meaning and enacting of justice, compassion and freedom, and the economic literature on taxation, from both New Zealand and abroad.
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Lifting the bucket: Tax policy and economic growth
The paper discusses the various ways that taxation affects our behaviour and in particular the sorts of activities that drive higher productivity and economic growth, such as innovation, investment, enterprise, and skills. Because a growing body of research by the OECD and others now indicates that the mix of taxes may have a significant impact on a country’s economic growth, through their effects on the various productivity and economic growth drivers, the paper suggests that the government should consider changing the mix of taxes. This would involve the government collecting less tax from growth-inhibiting taxes, such as personal income and corporate taxes, and collecting more tax from more growth-friendly taxes, like consumption taxes.
The paper also discusses how government may have a more positive or more negative effect on a country’s economy, suggesting that the financing and composition of government spending can make a difference to growth. Further, the paper argues that the size of government is an important growth determinant, since the more the government consumes from the economy in tax revenue, the smaller becomes the private economy. The government can reduce productivity and output in these ways, especially if taxpayers’ money is spent on expenditure which does not add value to the economy.
Read more from the Tax Discussion Series here: