Taxation and Economic Growth : An Empirical Analysis on Dynamic Panel Data of WAEMU Countries

This paper studies the impact of taxation on economic growth of the eight WAEMU countries. Among the critiques addressed to the public sector, numerous are those that refer principally to the negative effects which entail high weight and increasing of taxation. The growth rate can be influenced by economic policy choice relative to taxation which has an effect on the decisions of economic agents and is due to the productive public expenditures. The reason is that high level of taxation can be distortionary and like this negatively influences economic growth while law weight of taxation can generate some returns which will be enclosed in production. In order to catch this phenomenon in the WAEMU countries, we have contrary to the more previous studies accounted a non-linear effect of taxation on economic growth. Mobilizing a dynamic panel data specification over the period 1989–2012, the econometric results suggest the absence of a non-linear relationship between taxation and economic growth of WAEMU. Specifically, weak and high rates respectively at short run and long run do not create distortions and hence affect positively economic growth of WAEMU and generate income. This effect on economic growth then increase over time as the fiscal revenue increase.