The impact of tax revenues on economic growth: empirical evidence from Georgia

Abstract

Establishing a rational tax policy is of great importance for stable and effective public governance. This article discusses the impact of changes in tax revenues on economic growth, using the example of Georgia. In the years after independence, significant changes in Georgian tax policy were made several times, which affected the economy of the country and made the issue of tax policy research relevant. Taxation is an important source of state revenues in Georgia. The amount of tax revenues in Georgia has continuously increased over the years, and reached 22.2% of gross domestic product in 2020. In addition, the ratio of revenues collected by direct and indirect taxes in tax revenues and the changes in dynamics are noteworthy. The impact of taxation on economic growth in Georgia is analyzed in this paper using the Autoregressive Distributed Lag (ARDL) model. The results of the econometric analysis suggest the positive and significant impact of indirect taxes as well as the negative impact of direct taxes on economic growth. Thus, tax policy changes are recommended.