Taxation and economic sustainability

Macroeconomic theory says that taxes play a repressing role in the economy. Introduction of new forms of taxation, the increase of tax rates and augmentation of tax income of the Government puts a downturn risk on consumption and therefore on economic growth. Knowing that, Governments start to compete with other countries by lowering corporate tax rates and trying to boost economic growth by using foreign investments. On the other hand Governments are pushed to lower personal tax rates in order to satisfy their electorate. It was highly believed that countries with lower tax rates have better prospects for future growth. However, small tax income boundaries government spending and might cause serious imbalances in economy. As the Irish example shows smaller taxes cannot guarantee sustainable growth of the economy. So the taxation and economic development relationship needs rethinking. This paper aims to test the efficiency of taxation in sustainable economic development terms and to discuss the factors that are the most important. The comparative analysis of EU countries is used for the research.