Improving productivity by improving the tax system, April 2017

A top challenge facing policymakers today is how to raise total factor productivity, the key driver of living standards over the long term. Tackling this challenge calls for the use of all policy levers, and in particular growth-friendly fiscal policies.

This chapter makes the case that upgrading a country’s tax system is important to boosting productivity because it can reduce distortions that prevent resources from going to where they are most productive. The chapter offers several key findings to support the overall message that how governments tax matters for productivity.

Improving the design of tax policies helps remove the distortions that are holding more productive firms back, generating a positive impact on aggregate productivity and growth.

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All photography by Jared Chambers