Journal of Tax Reform
The Impact of Tax Structure on Economic Growth: New Empirical Evidence from Central and Eastern Europe
Desislava G. Stoilova
South-West University “Neofit Rilski”, Blagoevgrad, Bulgaria
Abstract
This study aims to provide new evidence of the impact of total tax revenue and tax structure on economic growth in a sample of eleven European Union (EU) member states located in Central and Eastern Europe (CEE), namely Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia. The methods used are description, comparison, synthesis, regression and correlation analysis of annual panel data for the period 2000-2021. The ordinary least squares (OLS) method is used to estimate the parameters of the regression models. The causal relationship between the variables is confirmed by the Granger causality test. The main results indicate that there is a significant negative effect of total government spending on economic growth rate, while the total tax revenue has a positive impact. These findings suggest low efficiency of public spending. The structure of tax systems does not seem to hinder economic growth, as both direct and indirect tax revenues show a positive growth-supporting effect. Only social security contributions are estimated to have a detrimental impact on economic growth. Value added tax and both income taxes (personal and corporate) are found to be growth-conductive, while property taxes and excise duties seem to have no significant impact on the growth rate. Based on the research findings it is obvious that government expenditure is not an effective tool for positive fiscal impact on the economy, so policymakers can support economic growth by decreasing the share of public spending in GDP or by increasing its efficiency. It is recommended to maintain the current ratio between direct and indirect tax revenue, while carefully considering changes to social security systems to promote sustainable and inclusive growth.
Keywords
tax revenue, tax structure, economic growth, Central and Eastern Europe (CEE)
JEL classification
E62, H21, O47References
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About Authors
Desislava G. Stoilova – Ph.D, Associate Professor, Department “Finance and Accounting”, Faculty of Economics, South-West University “Neofit Rilski”, Blagoevgrad, Bulgaria (66 Ivan Mihaylov Str., 2700 Blagoevgrad, Bulgaria), ORCID: https://orcid.org/0000-0001-6034-4225, e-mail: dstoilova@swu.bg
For citation
Stoilova D. The Impact of Tax Structure on Economic Growth: New Empirical Evidence from Central and Eastern Europe. Journal of Tax Reform. 2023;9(2):181–196. doi.org/10.15826/jtr.2023.9.2.136
Article info
Received July 6, 2023; Revised July 23, 2023; Accepted August 13, 2023
DOI: https://doi.org/10.15826/jtr.2023.9.2.136
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