The impact of the tax burden on the living standard in OECD countries

Abstract

In the article, the Instrumental Variables Method (IVM) is used to describe the interaction among taxation and economic growth in the OECD countries. The analysis aims to verify the negative effect, suggested by economic theory, of the effective tax burden on economic growth. Inasmuch as the Tax Quota, that is standardly used to approximate the tax burden, brings some shortcomings that call the results of empirical analyzes into question, the authors also present the WTI - World Tax Index. Above all, the results show that (i) taxation has a significantly negative impact on economic growth, both when measuring the tax burden using the tax quota, and when using the alternative WTI tax burden index; (ii) use of the WTI generally allows to prove more significantly and clearly the negative effect of taxation in case of particular types of taxes, which is not possible using the tax quota.