TAXES AS A SOURCE OF GOVERNMENT SPENDING FINANCING

Pro-growth effects are usually connected with the productive government spending financed by indirect taxes in the literature. Thus the aim of the paper is to confirm or refute this hypothesis for OECD countries in the period 2000-2012. Unlike similar studies, the analysis is based on a dynamic panel data model and uses two alternative proxies for taxation - the tax quota and the World Tax Index (WTI). Results of the analysis confirm the hypothesis, showing that if productive spending is financed by indirect taxes, the effect on economic growth is positive, while if the spending is financed by direct taxes, the effect on growth is negative. However, the increase in indirect tax revenues must be accompanied by an increase in real tax burden via this type of taxation approximated e.g. by the WTI, which means that only an increase in effectiveness of tax collection is not sufficient.