Page 49 - Azerbaijan State University of Economics
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Javid Seyfullali: Tax Revenue and Economic Growth in Resource-Rich Country:
Empirical Evidence from Azerbaijan
INTRODUCTION
Scientific discussions about state intervention in economic processes began with the
works of early mercantilists and continued by representatives of physiocracy
(François Quesnay and others), classical (Adam Smith, David Ricardo, etc.) and
neoclassical theories (A. Marshall, A. Pigou, etc.). With the advent of Keynes's theory,
this issue rose to a completely new level and became one of the main subjects of
debate between neoliberalists and neo-Keynesians. One of the few points of contact
between these mutually exclusive approaches is the undeniable role of the state in the
production and maintenance of public goods.
The need to produce public goods, which is accepted as one of the main attributes of
welfare in modern theories of economic development, determines the formation of the
state’s fiscal policy and the use of taxes to create sources of government spending. On
the other hand, government spending is one of the important aggregates of the
country’s gross domestic product, and also has a multiplier effect on other
macroeconomic parts of national wealth (consumer spending, investment). In addition
to the above, taxes, which are the main source of government expenditure, are also
seen as a factor that slows down and impedes economic growth.
In the modern world, the globalization of economic processes and the development of
digital technologies have led to a weakening of the economic borders of countries and
a significant increase in the mobility of capital, technology and labor. These processes
have also brought to the fore the issues of preserving these resources in the country
and attracting them from foreign countries. In the current situation, the attractiveness
of the tax system for investors, especially in developing countries, has become
particularly important. In such conditions, the state’s economic policy faces two
dilemmas: a) increase the production of public goods to meet the growing demand for
them - this leads to an increase in government spending and the need for additional
sources of income, including additional tax revenues; b) reduce the tax burden of the
economy as much as possible in order to support the development of economic growth
factors in the country - this can lead to a relative decrease in state tax revenues. To
solve the mentioned problem, numerous studies have been conducted and similar and
different empirical results have been obtained. Differences in the level of development
of countries, competitiveness, the structure of national wealth, capital and labor
intensity of the established economy, the efficiency of markets, innovation systems
and other important factors are also reflected in the impact of taxes and government
spending on economic growth.
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