Law in the tax legal system, income inequality and economic growth: An empirical estimation

Abstract

The law on the tax system is of great interest when we discuss income inequality and economic growth. The understanding and interpretation of the purpose of taxes are closely related to the rule of the role of the state as the expansion of the role of the state increases the need for monetary means by which the state meets public needs and which in itself constitute public revenues (Bardho, 2022). This study aims to highlight the impact of income inequality and economic growth in the case of North Macedonia. The distribution of income and the average level of income in a developing country is the key factor for social wellbeing. Countries, where income inequality is decreasing, grow faster than those with rising inequality (OECD, 2014). The data used are time series data and cover the period 1997–2019. This study uses data from World Development Indicators (WDI) and sheds light on the factors, which impact income inequality using multiple regression analyses. This study employs the OLS regression analysis in order to estimate the variables that affect income inequality and economic growth. It is concluded that the positive Gini coefficient approves the Kuznets hypothesis and the pro-inequality theory which means that in the first phase of countries’ development, income inequality is expected to be positively linked to economic growth. The study suggests that economic growth, if the benefits of growth are evenly distributed, has a positive effect on reducing income inequality