Document Type

Article

Department or Administrative Unit

Economics

Publication Date

2011

Abstract

This paper investigates the impact of corporate income taxes and personal current taxes on economic growth. Time-series tests analyzing the relationship between corporate taxes and nonresidential investment are implemented. Also tests of the impact of personal current taxes on the labor supply, approximated by the average weekly overtime hours in manufacturing, are undertaken. These tests include cointegration, vector error correction (VEC) estimation, and Granger causality testing of the relevant time-series data. Cointegration tests indicate the existence of a stable long run relationship between corporate taxes and nonresidential investment. Further investigation of this relationship is undertaken within the VEC testing framework. VEC test results indicate that corporation taxes have a negative impact on nonresidential investment. Therefore, corporate taxes appear to affect negatively the economic growth in the U.S. Econometric tests of the personal current taxes data and the average weekly overtime data indicate that these two time series data are statistically independent. Therefore, under this study’s testing framework, there is no statistical evidence of a negative impact of personal current taxes on the labor supply and economic growth. This paper investigates the impact of corporate income taxes and personal current taxes on economic growth. Time-series tests analyzing the relationship between corporate taxes and nonresidential investment are implemented. Also tests of the impact of personal current taxes on the labor supply, approximated by the average weekly overtime hours in manufacturing, are undertaken. These tests include cointegration, vector error correction (VEC) estimation, and Granger causality testing of the relevant time-series data. Cointegration tests indicate the existence of a stable long run relationship between corporate taxes and nonresidential investment. Further investigation of this relationship is undertaken within the VEC testing framework. VEC test results indicate that corporation taxes have a negative impact on nonresidential investment. Therefore, corporate taxes appear to affect negatively the economic growth in the U.S. Econometric tests of the personal current taxes data and the average weekly overtime data indicate that these two time series data are statistically independent. Therefore, under this study’s testing framework, there is no statistical evidence of a negative impact of personal current taxes on the labor supply and economic growth.

Comments

This article was originally published in Indian Journal of Economics and Business. The full-text article from the publisher can be found here.

Journal

Indian Journal of Economics and Business

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