Tax can promote growth and equity, says the IMF…but how?

The relationship between taxes and growth is hardly an easy topic to resolve in a single blog. But the IMF has been saying some interesting things on this subject recently, not least in a paper I reviewed a couple of weeks ago, which had three notable findings:

  1. In middle- and high-income countries, there’s a negative association between economic growth and the share of personal income tax and social security contributions in the tax mix (and a positive one for value-added and sales taxes).
  2. The share of corporation tax in the overall mix doesn’t have a significant relationship with economic growth.
  3. The authors couldn’t find a significant association between growth and any particular kind of tax in low-income countries, apart from a negative one for trade taxes.

Now, via Mark Herkenrath, comes a note of an IMF conference “Taxation and Economic Growth in Latin America”.  The note asserts that “Tax Policy Can Help Spur Economic Growth”, so the question, in the light of the evidence from the previous paper, is how?

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