OECD (2010), “Tax Policy Reform and Economic Growth, OECD Publishing, 11/03/10

This OECD report underscores the point that VAT’s are least negative for economic growth, and that corporate income taxes are “most harmful” in stimulating investment and productivity.

As to the fears that VAT’s always grow, in the ten years from 2000 to 2010, 21 of 30 OECD countries with VAT’s held or reduced their VAT’s. Those 9 of 30 countries which increased their VAT’s raised the tax an average 1.6% absolute on an average base of 18.4%.

“Many countries have been running large budget deficits as a result of the financial and economic crisis with strongly increased debt levels as a consequence. Reducing debt levels, also in light of ageing societies and the resulting higher pension and health costs, has been – or very likely will be – put high on the political agendas in many countries. Debt-to-GDP levels can be reduced either by reducing spending or increasing taxes but also by increasing the GDP growth rate. Such considerations point to designing the tax system in such a way that it is the least negative for economic growth, p. 9 …

…In open economies the design of a national tax system will need to consider the design of tax systems in other countries, since countries are increasingly using their tax systems to improve their ability to compete in global markets, p. 19 …

…Corporate income taxes can influence the choice of location of factories and offices. The tax system is only one factor among many in improving countries’ competitiveness otherwise there would have been a large outlfow of capital and activities from high to low tax countries, but there is evidence that location decisions are becoming more sensitve to tax, p. 20 …

…Corporate income taxes are the most harmful for growth as they discourage the activities or firms that are most important for growth: investment in capital and productivity improvements. In addition, most corporate tax systems have a large number of provisions that create tax advantages for specific activities, typically drawing resources away from the sectors in which they can make the greatest contribution to growth, p. 22″

http://dx.doi.org/10.1787/9789264091085-en