Effects of fiscal mechanisms on economic growth

BenAli, Wissem and Amaidi, Nabila (2024): Effects of fiscal mechanisms on economic growth.

Abstract

This study investigates the influence of corporate profit taxation on economic growth using an endogenous growth model. Employing the panel smooth transition model (PSTR) to analyze the fiscal structure, we focus on six Arab countries within the West African Economic and Monetary Union (WAEMU) over the period from 1970 to 2016. Our findings reveal a nuanced relationship between corporate profit taxation and economic growth. We find that when the rate of delayed taxation for a given period is increased, corporate profit taxation positively impacts the economy, indicating the effectiveness of fiscal policy in stimulating growth. However, our analysis also uncovers a critical threshold beyond which the level of corporate profit taxation exerts a negative influence on growth. This suggests that excessive taxation can impede economic expansion. In light of these findings, we advocate for the implementation of a tax system characterized by reduced distortion, greater proportionality, targeted policies, and democratic principles. By fostering a more conducive fiscal environment, such reforms have the potential to support sustainable economic growth and development in the region.

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal Mechanisms; PSTR; Economic Growth
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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