THE IMPACT OF TAX BURDEN LEVELS ON LONG-TERM ECONOMIC ACTIVITY

Dragan Avramović; Dalibor Šare

doi:10.59864/Oditor32601MJ

Authors

Dragan Avramović Military Academy, University of Defence, Belgrade, Serbia Author https://orcid.org/0000-0001-7835-195X
Dalibor Šare Military Academy, University of Defence, Belgrade, Serbia Author https://orcid.org/0009-0006-8366-7207

DOI:

https://doi.org/10.59864/Oditor32601MJ

Keywords:

tax burden, economic growth, panel model

Abstract

This paper investigates the comparative long-term effects of tax burden levels on economic activity across developed and transitional European countries. The methodological approach is grounded in endogenous growth theory, which incorporates economic, social, and political variables to simulate the existence of a long-term relationship between tax policy and economic growth, with the aim of identifying recommendations for tax policy that support sustainable growth. The assessment of the long-term relationship between tax burden levels and economic activity is conducted using annual data from balanced panel models covering 16 developed and 15 transitional European countries over the period 1995–2019. The analysis employs a dynamic panel model estimated via the Difference Generalized Method of Moments (GMM). Empirical findings indicate that the impact of tax burden on long-term economic activity is nonlinear and statistically significant across both groups of countries. The results suggest that sustainable economic growth requires a reduction in tax burden levels.

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