Tax Revenues and Economic Growth: Evidence from Panel Quantile Regression Analysis

Abstract

Changes in countries tax policies can affect many macroeconomic factors, such as production, investment, employment, income distribution, and economic growth. Governments often resort to fiscal policy tools to steer the economy. One of the fiscal policy tools is taxes. However, there is no consensus on how tax changes affect economic growth. Therefore, this study analyzes the relationship between tax revenues and economic growth by quantile regression analysis with annual data for 37 OECD countries from 1995-2020. According to the findings obtained from quantile regression analysis, it is found that taxes have a negative and statistically significant effect on economic growth in countries with low economic growth and also in the panel average. In addition, it is determined that tax revenues have a positive impact on economic growth in countries with high economic growth and a negative but statistically insignificant effect in other quantiles. Based on these results, it can be said that tax increases in OECD countries with low economic growth will reduce economic growth. Therefore it is essential for these countries that want to grow economically must restructure their tax policies by taking this into account.