Journal of Global Economics

Taxation and Economic Growth: Theoretical and Empirical Literature Review

Abstract

Mohammed Alqadi and Suraya Ismail

This paper reviews the literature on the relationship between tax and economic growth from the theoretical side and the empirical side. The main aim of this paper is to add to the current debate on this relationship. The paper reveals that neither the theoretical literature nor the empirical literature provides conclusive evidence of the nature of this relationship. There are three points of view in the theoretical literature: the positive affect, negative affect, and nonlinear effect of taxation on economic growth. However, although the majority of empirical studies support the negative impact, empirical evidence for increased nonlinearity is increasing. In general, the theoretical and empirical literature gives different results due to various factors such as the selection of countries' samples, the development level of countries, the period of time, the control variables included, and the methodology used. Therefore, in order to obtain more reliable results, the most advanced methods should be used in future researches.