Should taxes be reduced in order to achieve economic growth, thus increasing the pool of resources that are produced for distribution to the population, or should they grow first to be able to reduce taxes afterwards? This last point of view, which is consistent with what has existed for the past six years in Portugal, does not make sense in the current context, in fact it stifles growth and retards the country, as we have seen.
As the economic literature reveals, taxes, especially on corporate and individual income, impede economic growth, on the contrary, public spending financed by taxes that makes sense – to support equipment production, research and development, and the accumulation of human beings. Capital and birth promotion. This is how the generality of the neoclassical theory models of endogenous economic growth proposed by notable authors such as Daron Acemoglu, Philip Agion, Robert Barrow, Jane Grossman, Ilhanan Hellmann, or Peter Howitt.
In this sequence, also in empirical articles recently published in major economic journals and in worksheets Act National Bureau of Economic Research (NBER), there is practical consensus on the conclusion that the tax burden has negative effects on growth and that the strength of the effect depends on the level of taxation, and who and when it is punished.
Mertens and Olya (2018, Quarterly Journal of Economics) Use time series data from 1946 to 2012 to conclude that reductions in the tax burden increase real GDP and reduce unemployment. In the described context, a decrease in the tax rate by one percentage point would increase real GDP by 0.78 percent by the third year after the change, due to changes in incentives rather than increases in aggregate demand.
Cluyne, Dimsdale E. Postel-Vinay (2018, NBER WorksheetHe studied the United Kingdom in the interwar period 1918-1939, a period of high debt and low interest rates, in order to understand the impact of taxes on economic growth. The authors found that a 1 percentage point reduction in the tax share of GDP increased real GDP by 0.5 to 1 percent immediately and by 2 percent after one year. The data provides compelling evidence that taxes affect growth in environments of high debt and low interest rates.
Ljungvist e Smolyansky (2018, NBER Worksheet) analyzed 250 tax changes between 1970 and 2010 to assess the direct impact on income and employment. They observed that: (1) On average, a 1 percentage point reduction in the corporate income tax rate results in a 0.2% increase in employment and a 0.3% increase in wages; (ii) The positive effect associated with tax cuts is most severe in recessions and in the long run; (3) Tax increases are uniformly harmful.
