Is There any Obvious Relationship Between Taxation and Economic Growth?

Abstract

Abstract In an economy facing multiple crises (economic, pandemic, energy crisis, political and security crises) becomes necessary to determine the implications of fiscal changes on the economy’s evolution. This paper aimed to assess the link between taxation and economic growth in the European Union Member States, considering panel data for the period 2000-2021 to identify taxation’s specific implications on economic growth. The methodological endeavour encompassed both qualitative and quantitative research approaches. The qualitative analysis of the study involved a bibliometric analysis of the existing literature and visual mapping of the bibliographic data employed to highlight the differences between the values of the variables recorded in the EU countries. The quantitative research methodology assumed the empirical analysis through a panel data regression with fixed and random effects to identify the reaction of the growth rate of the gross domestic product to changes in direct and indirect taxes. Our results indicate a relationship between taxation and economic growth, depending on the tax type. We have identified a direct relationship in the case of taxes on the income or profits of corporations, including holding gains and value-added taxes and an indirect relationship in the case of taxes on individual or household income including holding gains and other taxes on production. In addition, the impact of indirect taxes is more significant. These specific relationships influence the change in fiscal policies in response to economic shocks.