---

OECD Study Acknowledges Laffer Curve, Admits Progressivity Bad for Growth
...additional government revenue should be balanced against the risk that high corporate tax rates will reduce economic activity and Japan’s potential growth rate, in the context of growing international tax competition. Given the serious fiscal situation, the government has thus far resisted pressure from domestic business groups, such as Nippon Keidanren (2006), to reduce statutory corporate tax rates. However, the impact of lower tax rates on government revenues is likely to be limited by positive supply-side effects. Indeed, in some OECD countries, revenue was boosted by lower tax rates, thanks to higher profitability and the increased size of the corporate sector (2007 OECD Economic Survey of the United Kingdom). Indeed, the amount of taxable income in the corporate sector tends to be higher in countries with low corporate tax rates (Figure 12). Consequently, corporate income tax receipts show less variation across countries as the impact of higher tax rates is negated by the lower level of taxable income. As a result, there is almost no correlation between the statutory corporate tax rate and corporate tax receipts as a share of GDP (Panel B). …The weak degree of progressivity in the personal income tax system thus has a positive impact on both labour inputs and on human capital and labour productivity. Maintaining the relatively low degree of progressivity, or even reducing it further subject to the fiscal constraints, would be beneficial for Japan’s growth potential....

---

OECD Admits High Personal and Corporate Tax Rates Hurt Prosperity
...Taxes can have an effect on countries’ material living standards by affecting the determinants of GDP per capita – labour, capital and productivity. For instance, by distorting factor prices and returns to market activities, they can alter households’ labour supply decisions and incentives to enrol in higher education, as well as firms’ incentives to invest and to hire employees, and thus, lead to an inefficient allocation of factor inputs and lower productivity. …The findings of this paper suggest that taxes have an adverse effect on industry-level investment. In particular, corporate taxes reduce investment by increasing the user cost of capital. …The paper finds new evidence that both personal and corporate income taxes have a negative effect on productivity. …High top marginal personal income tax rates are found to impede long-run productivity working through the channel of entrepreneurial activity and this effect is estimated to be stronger the higher the entrepreneurial activity is in an industry. …The results also support the assumption that social security contributions have a negative influence on TFP and that this effect is more pronounced in industries that are characterised by high labour intensity....