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RESEARCH PRODUCT

FISCAL POLICY`S INFLUENCE ON ECONOMIC GROWTH IN THE EUROPEAN UNION

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In this paper we study the impact of the fiscal policy on the economic growth for European Union, for the period 2000-2009. This subject represents a very debated problem in the economic literature. Our findings shows that, from the analysis of correlation between economic growth rate and total rate of taxation, there is generally an inverse relationship, meaning that an increase in the tax rate adversely affects economic growth. Continuing the analysis of the correlation between economic growth rate and total tax rate components it can be seen that there is an inverse relationship between labor taxation and capital taxation and economic growth in EU Member States. Both labour and capital taxes are part of direct taxes, so we conclude that a rise in direct taxes will cause a reduction in real GDP growth rate. In contrast, between taxes on consumption and real GDP growth rate there is no significant correlation.