Causality Between the Tax Burden of Direct Taxes and Economic Growth in European Union Countries with Proportional Taxation

Angel Angelov and Velichka Nikolova

JRFM, 2025, vol. 18, issue 11, 1-25

Abstract: The present study examines the relationship between economic growth and the tax burden that is formed as a result of income taxes. The main goal is to verify whether there is a link between these research variables in the long run and if this is confirmed, to analyze the manner in which these processes interact. The research applies a range of econometric techniques, including stationary tests, pairwise Granger causality test, Johansen cointegration test, impulse functions, and variance decompositions in order to investigate causality in the short- and long-term. The study is based on 49 observations and covers four European Union (EU) member states (Bulgaria, Hungary, Romania, and Estonia), which continue to impose a proportional (flat) tax on personal and corporate income. The analysis relies on quarterly data for the period 2013Q1–2025Q1. The results obtained are quite heterogeneous, which can be explained by the significant differences in the tax policy pursued, as well as by a number of other features determining the growth of national economies.

Keywords: direct tax; economic growth; causality; Granger; Johansen (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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