EXPLORING THE DYNAMICS OF ECONOMIC GROWTH THROUGH TAXATION IN CEE STATES USING VAR METHODOLOGY

Abstract

The tax system serves as a crucial tool for achieving fiscal policy objectives efficiently, with minimal impact on the economy's functioning. Its primary role extends beyond merely funding government expenditures to include income redistribution and economic stabilization, fostering an environment conducive to sustained economic growth. The progress of nations on economic, social, political, and cultural fronts hinges significantly on governments' adeptness in revenue collection and maintaining fiscal system stability. This research delves into the intricate interplay between fiscal and social policies and their influence on the economies of emerging and developed nations within the Central and Eastern European Union member states during the period 2005-2020. Employing the autoregressive regression model (VAR), the study aims to unearth the impulse-response functions triggered by fiscal variables on the gross domestic product (GDP). By scrutinizing historical data, the research endeavors to offer forecasts concerning the economy's responses to shocks induced by both direct and indirect taxes, as well as social security contributions. The findings reveal nuanced insights. Indirect taxes exhibit minimal and statistically insignificant impact on the GDP. Conversely, direct taxes and mandatory social contributions demonstrate a substantial and adverse effect on the gross domestic product, signaling a noteworthy impact on the overall economy. This research contributes valuable perspectives on the intricate dynamics between fiscal policies and economic outcomes, shedding light on the need for strategic and calibrated approaches to taxation for sustained economic development and social welfare in the Central and Eastern European Union member states.

Keywords

• var method
• taxation
• social security contributions
• economic growth
• impulse-response function