Impact of taxes on economic development: the example of European Union transition economies

Economic growth and economic development are the aims that countries want to achieve. The concepts of economic growth and economic development are confused with each other or they are used can be seen same sense. However, while economic growth refers to the increase in national income, economic development refers to social, cultural and economic progress as well as increased national income. Developed countries, which have performed economic development in a big sense, are taking care of with economic growth while developing countries are paying more importance to economic development. In the process of economic development, developing countries are facing a variety of challenges.The financing of economic development is certainly the main one of these problems. Financing of economic development can be provided in various forms of domestic resources and foreign resources. Within domestic resources the greatest source of financing economic development is undoubtedly the taxation. The primary purpose of taxes as a means of a finance policy, is to provide funding for public spending.In addition to their financial purpose of funding ,against the changing and developing world conditions,various kinds of purposes have been loaded to taxes. Within these aims, which we can express socially and economically, economic growth and economic development are of great importance for countries. In this study, using panel data analysis, the period of 2003-2015 in 11 European Union countries (transition economies) and in Turkey direct and indirect taxes, the impact of foreign direct investment on Per capita income used as an indicator of economic development are examined. As a result of the study, a positive relationship was detected between the per capita income of the dependent variable and the independent variable direct taxes and control variable foreign direct investment. Negative correlation was determined between indirect taxes and per capita income, which are other independent variables. Key Words: Taxation, Economic Development, European Union, Transition Economies, Panel Data Analysis