Tax structure and economic growth

Abstract

In the last two decades, Ecuador as well as the Latin American region has experienced significant macroeconomic changes with tax policy among the most relevant instruments in order to promote economic growth. This paper examines the impact of the most relevant tax instruments such as personal income tax, corporate income tax, taxes on goods and services, international trade tax, and natural resources revenues on economic growth performance, for the period of 1990 to 2014, using two approaches with time series data for Ecuador and panel data for selected Latin American countries. It was found that personal income tax does not have the expected negative impact on economic growth due to relatively small collections in the region. Corporate income tax negatively affects growth. However, when considering it with globalization index and natural resources revenues, its sign and magnitude change. A greater reliance on taxes on goods and services can contribute to enhance economic growth, whereas international trade taxes have the opposite effect. Natural resources revenues were found not to influence growth.