Tax Shift by Economic Functions and Its Effect on Economic Growth in the European Union

Abstract

The aim of the paper is to examine eff ects of tax shi on economic growth and provide a direct empirical evidence in the European Union (EU). It is used the Eurostat's defi nition to categorize tax burden by economic functions and implicit tax rates of consumption, labour and capital are investigated. First, paper summarizes main development of tax shi in a whole EU till 2014 and followed empirical analysis is based on annual panel data of 22 EU Member States in years 1995-2012 (time span is divided into a pre-crisis and a post-crisis period). Explanatory variables are not examined in individual regressions, but the study uses Generalized Method of Moments applied on dynamic panel data and estimations are based on Arellan-Bond estimator (1991). Results confi rm positive and statistically signifi cant impact of consumption taxes and weaker but negative eff ect of labour taxation on economic growth. In a post-crisis period, fi ndings report raising labour taxes as the strongest and the only signifi cant variable. It suggests that harmful eff ect of labour taxation is enlarging in a time of unfavorable economic conditions. A tax shi on capital taxation has negative but o en statistically insignifi cant impact on economic growth.

6th ERAZ Conference Proceedings (part of ERAZ conference collection)

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