EFFECTS OF TAXATION BY ECONOMIC FUNCTIONS ON ECONOMIC GROWTH IN THE EUROPEAN UNION

The complexity of today's global economic environment increases importance of identifying and understanding the key factors affecting economic growth. This paper deals with effect of changes in tax burden on economic growth and provides direct empirical evidence in the European Union as financial and economic crisis has impacted also on tax systems. It is used the Eurostat's definition to categorize tax burden by economic functions and implicit tax rates of consumption, labour and capital are investigated. The analysis is based on annual panel data of 24 EU member states in a period 1995-2010. Panel regression and Pairwise Granger Causality Tests are used as the main method of research. Results confirm, in line with the theory, statistically significant positive effect of consumption taxes and negative effect of labour taxes on GDP growth. In short-term, there is two-way causality between change of implicit tax rate of consumption and GDP growth and one-way causality between GDP growth and change of implicit tax rate of capital and implicit tax rate of labour.