The effect of tax policies on economic growth and income distribution

Taxes which have an important place in economic revenues and policies on taxes have important effects on macroeconomic variables. Tax policies, which have been the subject of theoretical discussions and empirical studies from past to present, are known to have an impact on economic growth and income distribution. There is no consensus on whether this effect is positive or negative. The aim of this study is to determine the effect of tax policies on economic growth and income distribution in developing and developed countries. In this study using the annual data for the period 1995-2017, econometric analyzes were carried out on 8 developing and 23 developed countries. Since the effect of tax policies varies according to the level of development of the country, the countries examined in the study are grouped according to the level of development. Income, institutions and wealth taxes, which are the tax policy outcomes, are included in the analysis as direct taxes, and goods and services taxes and value added taxes are included in the analysis as indirect taxes. In addition, total tax revenues are included in the analysis as independent variables for both country groups. By creating a variety of independent variables, it was aimed to examine the effects of tax policies on economic growth and income distribution in depth. Findings revealed that tax policies are generally effective on economic growth and income distribution. The effects differ positively and negatively according to the level of development and indirect - direct tax policies of the countries. The empirical results reached indicate that indirect taxes, in particular, impair the income distribution against low-income people. Moreover, according the results, taxes affects economic growth positively by contributing positively to the national income both directly and indirectly. The main hypothesis of the study was confirmed and constructive suggestions were presented in this direction.