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Javid Seyfullali: Tax Revenue and Economic Growth in Resource-Rich Country:
Empirical Evidence from Azerbaijan
Castanheira et al. (2012) researched the topic with different approach focusing on the
tax reforms implemented in the European Union and found that governments tend to
carry out tax reforms in better periods of the economy, not in periods of crisis, and to
direct the reforms to narrow goals instead of general goals (for example, general
economic growth, etc.). One of the important results of this study is that tax reforms
are usually initiated by political factors rather than macroeconomic reasons. This kind
of approach may result in procyclical fiscal policy.
Baiardi and colleagues (2017) did further research on the topic, they also found the
negative relationship between tax revenue and economic growth, but they didn’t find
any impact of increasing the weight of indirect taxes on economic growth. Another
finding of this research paper was the negative link between the transition from
personal income taxes to property taxes on economic growth, contradicting the
general results of Acosta-Ormaechea and Yoo (2012).
Matallah and Matallah (2017) analyzed the impact of fiscal policy on economic
growth in Algeria over the period of 1970-2015. Besides government spending, they
analyzed the relationship between indirect and direct tax revenues and economic
growth in both the long and short term. Regarding direct tax revenue, they found a
statistically significant negative link between direct tax revenue and economic growth
in the long run. Estimating the short-term relationship, the authors interestingly found
a positive, but insignificant relationship between direct tax revenue and economic
growth.
The reason for this positive relationship in short-term may be the result of the
automatic stabilizers effect. Regarding indirect tax revenue, the authors found a
statistically significant positive impact between indirect tax revenue and economic
growth in long term. Estimating the short-term relationship, the authors interestingly
found statistically significant negative relationship between indirect tax revenue and
economic growth. The reason for the negative relationship in short term between
indirect taxes and economic growth may be the disincentives for consumption created
by indirect taxes.
Barro and Wheaton (2019) found that decreasing income taxes and dividend taxes
result in an increase in the number of entities preferring a corporate management style.
In Nigeria, where oil revenues account for a significant share of the economy, there
are studies examining the relationship between different types of taxation and
economic growth.
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