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Optimal tax revenues and economic growth in transition economies: a threshold regression approach

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  • Celil Aydin
  • Ömer Esen

Abstract

The purpose of this article is to explore the impact of tax revenue as a share of GDP on economic growth in transition economies. The article uses a dynamic panel threshold model to examine the nonlinear relationship between tax revenue and economic growth of 11 central and south-eastern European and Baltic countries during the transition process between 1995 and 2014. The results suggest that the optimal level of tax revenue for maximising economic growth is approximately 18.00% of GDP for full transition economies, 18.50% for developing economies and 23.00% for developed economies. The findings indicate that tax revenues as a share of GDP above the threshold level adversely affect economic growth whereas a tax revenue rate below the threshold positively affects growth. The results of the current study reveal that tax sizes representing the share of the government in the economy have an optimal level.

Suggested Citation

  • Celil Aydin & Ömer Esen, 2019. "Optimal tax revenues and economic growth in transition economies: a threshold regression approach," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 21(2), pages 246-265.
    • Handle: RePEc:ids:gbusec:v:21:y:2019:i:2:p:246-265
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    Citations

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    Cited by:

    1. Menescal, Lucas & Alves, José, 2024. "Optimal threshold taxation: An empirical investigation for developing economies," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).
    2. Arvin, Mak B. & Pradhan, Rudra P. & Nair, Mahendhiran S., 2021. "Are there links between institutional quality, government expenditure, tax revenue and economic growth? Evidence from low-income and lower middle-income countries," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 468-489.
    3. Mkadmi, Jamel Eddine & Bakari, Sayef & Othmani, Ameni, 2021. "The Impact of Tax Revenues and Domestic Investments on Economic Growth in Tunisia," MPRA Paper 108387, University Library of Munich, Germany.
    4. Dramane, Abdoulaye, 2022. "The Nexus between Military Spending, Tax Revenues and Economic Growth in the G5 Sahel Countries," African Journal of Economic Review, African Journal of Economic Review, vol. 10(2), March.
    5. Temel Gurdal & Mucahit Aydin & Veysel Inal, 2021. "The relationship between tax revenue, government expenditure, and economic growth in G7 countries: new evidence from time and frequency domain approaches," Economic Change and Restructuring, Springer, vol. 54(2), pages 305-337, May.
    6. Yusuf Shamsuddeen Nadabo & Suleiman Maigari Salisu, 2021. "Investigating the Expenditure-Economic Growth Nexus in Nigeria the Presence of Structural Breaks: A Nonlinear ARDL Cointegration Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 5(09), pages 146-153, September.
    7. Channew Maneerat & Snober Fazal, 2020. "The Influence of Tax Revenue, Government Expenditures, Fiscal Decentralization, Carbon Emission and Exports on Economic Growth of Developing Countries," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 1(2), pages 1-12, June.

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