The Relationship Between Corporate Tax Rate and Economic Growth During the Global Financial Crisis: Evidence from a Panel VAR

Abstract

This paper compares dynamic relationship between economic growth and corporate tax rate during the recent financial crisis and the non–crisis period using a panel VAR for 29 OECD countries over the period 1998-2016. The results show that corporate tax rate has a significantly negative effect on economic growth. Moreover, the recent financial crisis has had a significant effect on the endogenous interaction between corporate tax rate and economic growth. According to Granger causality test, there is only one-way causality from corporate tax rate to economic growth during the non-crisis period. Interestingly, there are not any causal relationships between corporate tax rate and economic growth during the crisis period. The results show that the recent crisis has had a significant effect on the endogenous interaction between corporate tax rate and economic growth.