Optimal threshold taxation: An empirical investigation for developing economies

Abstract

In this study, we empirically assess both linear and nonlinear relationships between the total tax burden and various tax items with real per capita GDP growth rates for 41 developing countries between 1990 and 2019. We use panel data techniques to evaluate the impact of taxation, as a percentage of GDP, on economic growth in both the short and long run perspectives, and to identify threshold values for different types of taxes. In addition to contributing to previous evidence on the linear effects, our results support the existence of nonlinearities and motivate policies aimed at raising certain tax revenues without hindering economic growth.