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

Authors: Celil Aydin; Ömer Esen

Addresses: Faculty of Economics and Administrative Sciences, Bandırma Onyedi Eylül University, 10250, Balıkesir,, Turkey ' Faculty of Economics and Administrative Sciences, Muş Alparslan University, 49100, Muş, Turkey

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.

Keywords: government size; tax revenue; economic growth; transition economies; panel threshold model.

DOI: 10.1504/GBER.2019.098091

Global Business and Economics Review, 2019 Vol.21 No.2, pp.246 - 265

Received: 25 May 2017
Accepted: 31 Oct 2017

Published online: 17 Dec 2018 *

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