ON THE INEFFECTIVENESS OF TAX POLICY IN ALTERING LONG-RUN GROWTH - HARBERGERS SUPERNEUTRALITY CONJECTURE

In 1964 Harberger conjectured that, although theory predicts that chan ges in tax rates affect investment and growth in the long-run, in prac tice tax policy is an ineffective instrument to influence growth. This paper provides theoretical and empirical evidence in favor of this vi ew. The growth effects of tax policy in the class of endogenous growth models driven by human capital accumulation are examined, and numeric al simulations of these models confirm the results Harberger predicted . Cross-country panel regressions, estimated using a new method for me asuring effective tax rates, produce significant investment effects fr om taxes that are consistent with negligible growth effects. These res ults are robust to the introduction of other growth determinants, (C) 1997 Elsevier Science S.A.