Environmental considerations have led to proposals for the use of punitive taxes to discourage polluting activities. One potential drawback this may be the discouragement of economic growth.

Research, published in Fiscal Studies today, Friday 31st March, reviews the theoretical and empirical evidence to assess whether a consensus arises as to how significant this effect may be. It is shown that the theoretical models isolate a number of channels through which taxation can affect growth and that these effects are potentially substantial. Despite this, empirical tests of the growth effect point very strongly to the conclusion that the tax effect is very weak.

Ends

Notes to editors

1. The article, 'Taxation and Economic Growth' is published in Fiscal Studies, Volume 21, No. 1, available for ñ0 from IFS, 7 Ridgmount Street, London WC1E 7AE, 020 7291 4800, mailbox@ifs.org.uk.
2. Current Fiscal Studies articles are now available online to institutional subscribers with Ingenta. They can be purchased online for ñ3 each.
3. Contact: Gareth Myles, University of Exeter, 01392 264487