The Effect of Infrastructure and Taxation on Economic Growth: Insights from Middle-Income Countries

Abstract

We study the interactions between infrastructure and taxation on per capita economic growth in middle-income countries over 1960–2017. The dynamic panel data model is positioned to estimate this interface at three levels, (1) for upper middle-income countries (UMICs), (2) for lower middle-income countries (LMICs), and (3) for total middle-income countries (MICs), combined UMICs and LMICs. Each level has six different cases, depending upon the use of six infrastructure indicators. The findings show that the effect of infrastructure on per capita economic growth is positive and significant across the three subsets and in all six cases. On the contrary, the effect of taxation on economic growth is negative and the impact varies from UMICs to LMICs.