Taxes play an important role in modern society. With the resources collected through taxation, the State is able to finance itself and provide public goods to the population. Education, health and public safety are some examples of goods that the government provides free to society in exchange for receiving taxes.
The larger the state, the greater the need to raise funds from society
The more inefficient the public sector is, the more costly it will be for the worker to maintain the state structure. In this way, a small and extremely efficient state is something desirable to workers. After all, in such a framework the State would limit itself to a specific set of functions and exercise them with mastery, providing the population with a quality public good, and at an affordable cost.
From an economic point of view, the growth of the State generates the need to increase the tax burden (total mandatory contributions and taxes collected divided by GDP). However, the increased tax burden makes receiving public goods more expensive for workers. That is, they are forced to work longer hours to pay their taxes. Similarly, the disorderly growth of the state also burdens businessmen, making them invest less. Thus, an increase in the tax burden above a certain level negatively affects a society’s long-term standard of living. Using the taxfyle.com/blog/best-tax-software is important to calculate and understand.
The Right Purpose
The purpose of this article is to analyze the short and long-term effects of the Brazilian tax burden on economic growth. For this purpose, we use quarterly data, referring to GDP and the tax burden, from 1995 to 2009. In general, the results show a negative effect of the increase in the tax burden on economic growth. The economic policy implication of this fact is obvious: the Brazilian tax burden is too high, and a reduction in it would lead to a boost to the long-term growth of the Brazilian economy.
In addition to this introduction, this article presents in section 2 a more detailed explanation of the effect of the tax burden on economic growth. Section 3 details the database used in this study. Section 4 reports the statistical results. Finally, section 5 discusses the conclusions and implications of economic policy arising from this text.
The loss of economic efficiency associated with a high tax burden
There is a large specialized literature that studies the impacts of taxes on a society’s level of well-being. Within this literature there are established facts and open questions. For example, the theoretical models are clear in stating that taxes on financial transactions (similar to the old CPMF) are terrible from an economic point of view. Taxes on financial transactions cause many distortions in the economy, negatively affecting the economic efficiency of a society. This loss of efficiency translates into a drop in productivity, which ultimately reduces economic growth.