The impact of direct and indirect taxes on economic growth: an analytical approach from the Republic of Kosovo

Abstract

The objective of this paper is to investigate the effects of direct and indirect taxes on economic growth of Kosovo, as a relatively newly-independent country with a transitional economy. The study covers a ten-year period with a monthly time series from 2006m1 to 2016m9. The time series have been tested for unit root through the employment of augmented Dickey-Fuller test, to determine if time series data are stationary or possess unit root. Through the utilisation of Johansen test for cointegration, the study analyses if models contain at least one cointegrating vector, thus indicating significant long-term relationship among direct, indirect taxes and economic growth in the country. Finally, to find the impact of direct and indirect taxes on economic growth, vector autoregressive model - unrestricted VAR has been employed. Results suggest a positive and significant effect of indirect taxes on real GDP in Kosovo.