IESET.
Hypotheses·fiscal·tax_burden_frontier_growth_non_linear

At high-income levels (GDP per capita above OECD median), very high tax burdens — defined as total tax revenue above 40% of GDP — predict weaker long-run total factor productivity growth unless paired with unusually high state capacity (top tercile WGI Government Effectiveness) and high labour- market flexibility (top tercile OECD EPL), in an OECD and high-income panel 1980-2020.

The directional claim is that the growth cost of high taxes is conditional on institutional and labour-market quality, and is positive and significant only when both complementary conditions are absent.

PARTIALengine/runs/tax_burden_frontier_growth_non_linear

PARTIAL — coef=+0.01059, p=0.585 (above α=0.1); direction inconclusive

confidence cueThe result is useful, but not decisive. Treat it as a clue, not a settled conclusion.

policy briefMixed or noisy

In ordinary language

Over a long period, do more market-oriented institutions translate into higher income or productivity, once the comparison looks beyond a single success story?

plain answer

The evidence is suggestive but not decisive. coef=+0.01059, p=0.585 (above α=0.1); direction inconclusive

why it matters

This matters because fiscal claims should change belief only when they survive a pre-declared empirical test.

how the test works

It compares 35 country or place units from 1980 to 2020, using a panel fe design, with fixed effects for country and year.

what was measured
What changed
  • Total tax revenue pct income
  • State capacity index
Possible pathway
  • R d expenditure pct income
  • Business entry rate
What we checked
  • Total factor productivity growth
  • Labour productivity growth
what this does not prove

A single test is not the whole truth. It narrows the claim under a specific sample, time period, and method. Strong policy conclusions need the pattern to survive nearby tests, alternative data, and serious objections.

verification

No evidence packet has been generated yet.

Results

engine/runs/tax_burden_frontier_growth_non_linear
1007550250198020002020AUSAUTBELCANCHECHLCZE
illustrative sketch · run pending
No coefficients yet. When the model fires, this chart will show total_factor_productivity_growth across 35 sampled countries over 1980–2020.
The shapes above are stylised — none of the lines are real data.
Placeholder for tax_burden_frontier_growth_non_linear. Published chart will be generated from engine/runs/tax_burden_frontier_growth_non_linear/chart_data.json.

Pre-registration

pre-registered
first-spec commit 5ce4495 · 2026-05-02T19:11:20Z
run generated · 2026-06-29T17:52:36Z

At high-income levels (GDP per capita above OECD median), very high tax burdens — defined as total tax revenue above 40% of GDP — predict weaker long-run total factor productivity growth unless paired with unusually high state capacity (top tercile WGI Government Effectiveness) and high labour- market flexibility (top tercile OECD EPL), in an OECD and high-income panel 1980-2020. The directional claim is that the growth cost of high taxes is conditional on institutional and labour-market quality, and is positive and significant only when both complementary conditions are absent.

Falsification criterion — what would disprove this

set before the run · honoured after

This hypothesis is considered falsified if:

SUPPORTED if the marginal effect of tax revenue on TFP growth is negative and significant at p<0.10 in the low-state-capacity / low-labour-flexibility cell, AND is insignificant or positive in the high-state-capacity / high-labour-flexibility cell. PARTIAL if the high-tax negative effect survives in all cells but is attenuated in the high-capacity / high-flexibility cell. REFUTED if the marginal tax effect is positive and significant in the low-capacity / low- flexibility cell. INFORMATIVE: excluding Nordic countries should not eliminate the negative effect in the low-complementarity cell.

formal test & threshold
test:      panel_fe_nonlinear_tax_state_capacity_labour_flexibility_tfp
threshold: Marginal tax effect < 0 at p<=0.10 in low-capacity / low-flex cell  AND Marginal tax effect p >= 0.10 in high-capacity / high-flex cell  AND Ex-Nordic robustness retains pattern.

Method

Template
panel_fe
Fixed effects
country, year
Clustering
country
Sample
35 countries · 1980 – 2020
Evidence type
associational

Two-way FE panel with triple interaction: TFP growth = β0 + β1*tax + β2*state_capacity + β3*labour_flex + β4*(tax × state_capacity) + β5*(tax × labour_flex) + β6*(tax × state_capacity × labour_flex) + controls + FE. Subsample analysis: high-tax (>40% GDP) countries split by state-capacity and labour-flex terciles. Robustness: (1) use Heritage EFW tax-burden subindex instead of OECD tax revenue; (2) exclude Nordic countries to check for Nordic-driven results; (3) 5-year non-overlapping averages.

Data

VariableSourceTransform
total_factor_productivity_growth
outcome
pwt:rtfpnatier 3
annual_log_change
labour_productivity_growth
outcome
pwt:rgdpotier 3
annual_log_change_per_worker
total_tax_revenue_pct_gdp
treatment
oecd:total_tax_revenuetier 2
level
state_capacity_index
treatment
wgi:GE.ESTtier 4
level
labour_market_flexibility_index
treatment
oecd:overall_epltier 2
inverted_scale
r_d_expenditure_pct_gdp
channel
world_bank_wdi:GB.XPD.RSDV.GD.ZStier 2
level
business_entry_rate
channel
world_bank_wdi:IC.BUS.NREGtier 2
per_1000_working_age
initial_log_gdp_per_capita
control
world_bank_wdi:NY.GDP.PCAP.KDtier 2
log
human_capital_index
control
pwt:hctier 3
level
trade_openness
control
world_bank_wdi:NE.TRD.GNFS.ZStier 2
level
public_investment_share
control
world_bank_wdi:NE.GDI.FTOT.ZStier 2
level
regulatory_quality
control
wgi:RQ.ESTtier 4
level

● ready  · ● pending  · ● reconstruct-needed

Detailed result card

Result card — tax_burden_frontier_growth_non_linear

Verdict: PARTIAL — coef=+0.01059, p=0.585 (above α=0.1); direction inconclusive

Pre-registration

  • Claim: At high-income levels (GDP per capita above OECD median), very high tax burdens — defined as total tax revenue above 40% of GDP — predict weaker long-run total factor productivity growth unless paired with unusually high state capacity (top tercile WGI Government Effectiveness) and high labour- market flexibility (top tercile OECD EPL), in an OECD and high-income panel 1980-2020. The directional claim is that the growth cost of high taxes is conditional on institutional and labour-market quality, and is positive and significant only when both complementary conditions are absent.
  • Falsification rule: SUPPORTED if the marginal effect of tax revenue on TFP growth is negative and significant at p<0.10 in the low-state-capacity / low-labour-flexibility cell, AND is insignificant or positive in the high-state-capacity / high-labour-flexibility cell. PARTIAL if the high-tax negative effect survives in all cells but is attenuated in the high-capacity / high-flexibility cell. REFUTED if the marginal tax effect is positive and significant in the low-capacity / low- flexibility cell. INFORMATIVE: excluding Nordic countries should not eliminate the negative effect in the low-complementarity cell.
  • Falsification test: panel_fe_nonlinear_tax_state_capacity_labour_flexibility_tfp

Estimate

  • Method: linearmodels.PanelOLS
  • Coefficient (treatment): +0.01059
  • Std error: 0.01937
  • p-value: 0.585
  • Observations: 609, countries: 29
  • Within R²: 0.648
  • Fixed effects: entity=True, time=True
  • Clustering: country

Variables resolved

  • pwt:rtfpna → total_factor_productivity_growth (outcome, publisher=pwt, n=6407)
  • pwt:rgdpo → labour_productivity_growth (outcome, publisher=pwt, n=10399)
  • wgi:GE.EST → state_capacity_index (treatment, publisher=wgi, n=5168)
  • world_bank_wdi:GB.XPD.RSDV.GD.ZS → r_d_expenditure_pct_gdp (decomposition_channels, publisher=world_bank_wdi, n=3140)
  • world_bank_wdi:IC.BUS.NREG → business_entry_rate (decomposition_channels, publisher=world_bank_wdi, n=2370)
  • world_bank_wdi:NY.GDP.PCAP.KD → initial_log_gdp_per_capita (controls, publisher=world_bank_wdi, n=12104)
  • pwt:hc → human_capital_index (controls, publisher=pwt, n=8637)
  • world_bank_wdi:NE.TRD.GNFS.ZS → trade_openness (controls, publisher=world_bank_wdi, n=10714)
  • world_bank_wdi:NE.GDI.FTOT.ZS → public_investment_share (controls, publisher=world_bank_wdi, n=9870)
  • wgi:RQ.EST → regulatory_quality (controls, publisher=wgi, n=5169)

Variables missing data

  • oecd_revenue_statistics:total_tax_revenue (treatment, name=total_tax_revenue_pct_gdp) — vintage not on disk
  • oecd_epl:overall_epl (treatment, name=labour_market_flexibility_index) — vintage not on disk

Generated by scripts/run_panel_fe.py at 2026-06-29T17:52:36+00:00

Strongest opposing argument

Every hypothesis ships with its charitable opposing argument. The framework earns credibility by handling objections at their strongest, not weakest.

Notes

Data readiness: - OECD Revenue Statistics total tax revenue (ready) - OECD EPL overall (ready) - WGI GE.EST, RQ.EST (ready) - PWT rtfpna, rgdpo, hc (ready) - WDI GDP pc, trade openness, public investment, R&D, business entry (ready) - Heritage EFW tax burden (ready)

Authored framework. Read the transparency note.