DOES RAISING TAXES ON THE WEALTHY HURT THE ECONOMY? THE EFFECTS OF TOP MARGINAL INCOME TAX RATES ON GDP GROWTH IN A SAMPLE OF OECD COUNTRIES

Abstract

This thesis assesses whether marginal income tax rates for top earners have an effect on a country's GDP per capita growth. The paper builds upon previous research on the relationship between tax rates and economic growth by analyzing a sample of 20 OECD countries from 1981 to 2010 using country year fixed effects models. Controlling for other forms of taxation and widely-used growth regressors, the results indicate that top marginal income tax rates have no effect on GDP per capita growth. However, the study does find that corporate taxes have a strong and statistically significant negative effect on growth, while national consumption taxes have a strong and statistically significant positive effect on growth. These findings suggest that policymakers may benefit from seeking alternative approaches to tax policy to maximize a country's economic well-being.