The ratio of direct and indirect taxes: the main determinants

Abstract

The article presents a study of the main indicators that characterize the effectiveness of the ratio of direct and indirect taxes inthe tax system as a whole. An attempt is made to identify the main indicators of “demand” and “supply” for the application of differenttypes of tax and analyzed the admissibility of a universal model of the ratio of direct and indirect taxes in the state tax system. The keyfactors of supply and demand for both direct and indirect taxes have been identified. An attempt was also made to refute the generally accepted hypothesis that, due to globalization processes, countries with weaker economies are forced to use more direct taxes, and it isexplained that the ratio cannot depend solely on the level of economic development.The functioning of the state at the appropriate level in all areas depends on financial stability and budget. The study of budgetrevenue sources is always a topical issue, given that modern society is characterized by high dynamism in all areas and in order to meetthe requirements of the time, countries need to bring into line with reality and all issues related to the financial sector. Taxes are a keyelement in filling the budget. However, the question of their effective application requires a clear understanding of the essence of directand indirect taxes and the main elements of their relationship.The determinants of the ratio of the tax structure can be divided into factors of “demand” and “supply”. By demand factors wemean factors that increase the level of certain taxes or the general level of taxation due to benefits (privileges) or general budget constraintsof the public sector, for example, if there is a need to increase the number of public goods and services (to which a special taxrate applies), it will be necessary to raise taxes on private income.The tax system of most countries, including Ukraine, is based on the combination of direct and indirect taxes. However, it shouldbe understood that an effective model of the ratio of direct and indirect taxes is a relative issue and depends on a large number of factorsor determinants. And a universal model that would be equally suitable for any state does not exist, because what is good for a small territorialmonarchy is not suitable for a large republic and vice versa. Therefore, for the effective use of the taxation mechanism, the taxsystem must be developed with a focus on the specifics and specifics of each state.