Correlation between tax rates and economic growth : evidence from Greece and Cyprus

This study presents an empirical analysis of the correlation between some type of taxes and the economic growth in Greece and Cyprus in the period between 1995 and 2017. With a view to identify the impact of tax forms on economic growth and their relationship, the author decided to analyze a multiple linear regression panel through the use of Microsoft Excel package where gross domestic product is the dependable variable, while Value Added Tax, excise duties and consumption taxes, corporate income tax, personal income tax and net social contributions are the independent variables. It is undeniable that the revenue of any economy globally depends on taxation and apart from this function, taxes assist the governments to achieve macroeconomic targets in the field of fiscal and monetary policies. However, each country should design its own tax system based on numerous factors as tax structures seem to have different impact on economy activity for each nation something that has been proved also by the results of the analysis of the economic data of the on subject countries. The results in Greece have shown that value added tax, personal income tax and corporate tax have a positive impact on economic growth while excise duties and consumption taxes and the net social contributions have a negative impact but only VAT and net social contributions have a statistically significant impact. In the case of Cyprus, VAT, personal income taxes and net social contributions have a positive impact on economic growth while excise duties and consumption taxes and corporate taxes have a negative impact with the last type of tax being the only significant statistically.