THE INFLUENCE OF TAX SHOCKS ON THE ECONOMY OF DEVELOPED COUNTRIES

The aim of the paper is to find-out how long the influence of tax changes persists in the economy of developed countries gathered in the OECD. To achieve the goal, a panel VAR model is used to construct impulse-response functions. To measure the level of taxation, two alternative indicators are used. Those are the standard tax quota and the World Tax Index. The analysis is performed for 34 OECD countries in the period 2000-2012. The results show that when a temporary change in taxation is made, that is removed in the next period, there is a temporary decline in the economic growth rate, but over time it stabilizes at its original level. In contrast, in the case of permanent tax changes, the rate of economic growth stabilizes at a new level that persists in the economy even after ten years, although there is also a steady increase in the growth rate of government spending in the economy.