Revisiting Incentivism Theory —Testing Barriers to Riches on post-war panel data

In this monograph. we set out the theory of growth and its relationship to taxes and we also review the empirical evidence on this relationship. The empirical evidence is of two main sorts: ‘reduced form' correlations and individual country studies using a structural (causal) model of the DSGE sort. Of these two the former are able to cover large samples of different counties and episodes, which makes them attractive and persuasive. However, they have the drawback of poor 'identification' of the underlying causality. One cannot be sure that this runs from tax to growth as opposed to either reverse causation or joint causation by some third unmeasured factor.