Abstract
This study examines the relationship between tax revenues and the rate of economic growth for Greece. The viewpoint that the low ratio of direct to indirect taxation promotes high economic growth has been a main subject for discussion. However, not many papers have attempted to test the above hypothesis. One of the main problems that researchers are facing is the lack of time series data over a sufficiently long period. This brings out particular problems when testing for unit roots and cointegration between time series of the variables used. In this study, we try to analyse the relationship between total tax revenues, income tax and tax on capital gains, gross domestic saving and the rate of economic growth. In order to find this relationship, annual data from 1965 until 2002 and causality analysis are used. The findings have shown that there exists causal relationship between tax revenues and economic growth in Greece.
Highlights
Tax policy can be regarded as the necessary component of economic policies for every country in order to sustain and strengthen their global competitiveness and growth internationally
This paper examined the relationship of the rate of economic growth to the ratio of gross savings to gross domestic product (GDP), to the marginal direct tax rate and tax revenues using annual data for the period 1965-2002
The empirical analysis showed that the variables used in this study present a unit root
Summary
Tax policy can be regarded as the necessary component of economic policies for every country in order to sustain and strengthen their global competitiveness and growth internationally. We have roughly two-thirds of tax revenue coming from indirect taxes, while for developed countries two-thirds comes from direct taxes They suggest that tax structure can change over time to maximize the economic growth rate. Taking account of the financing assumptions associated with the government budget constraint, their results are consistent with the Barro[17] model They find that non-distortionary taxation and productive expenditure enhances growth. Model specification and data: The method of autoregressive VAR model is being used so that we can valuate the influences of economic growth upon savings, total tax revenue and taxes on income, gains and gains on sales fixed capital. For the analysis of causal relationship between economic growth, savings, total tax revenues and taxes on income, gains and gains from sales fixed capital we use the following multivariate VAR model: k
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