Some Theoretical Problems with the Relation between Taxation, Efficiency and Economic Growth
Studying taxation and its effects is important both on macro- and micro-economic levels. Countries show widely different proportions in terms of tax types while the said proportion does, of course, change over the time within the same country as well. Income taxes and indirect taxes trigger various effects, depending also on whether the latter are fixed-rate (‘flat tax’) or differential. Attention has to be paid also to the possible increase in income polarisation. Answers have to be found to questions as who bears the tax burden, i.e. those on whom they are levied or other parties as well? All fiscal decisions do have effects on the entire economy – this is why their understanding and assessment are a must.
As to this issue, analysing the relation between taxation and deadweight loss plays the most significant part. The author proves that any tax (even the poll tax) leads to deadweight losses. These losses cannot be reduced directly, not even in the case of goods for which demand is absolutely inelastic. Only tax reductions can lower deadweight loss. Actual developments in nationwide deadweight loss can be understood only if the change in the expenditures of public finances is also analysed. The squared correlation can only be interpreted on micro-economic rather than macro-economic level. It is mistaken to compare deadweight loss, including producer and consumer surpluses, with GDP. Furthermore, also macro-economic aspects have to be taken into account when deadweight loss is analysed.
The study focuses on the main tax types in terms of their theoretical implications. The effects of direct taxes including corporation taxes and personal income taxes are also discussed. Special attention is paid to the developments in and role of social security contributions. The role of consumption and turnover taxes is also evaluated and the amount of revenues that can be reached through property taxes is also appraised. Customs duties are not analysed since such an examination would lead to the discussion of topics that are beyond the field of this study. Owing to their current role, special attention is paid to theoretic issues related to petty taxes.
The taxes analysed make up the vast majority of budgetary revenue, this is why their aggregate effect can easily be clarified. The last chapter offers a comprehensive evaluation of both the favourable and unfavourable growth effects of taxation.