IMPACT OF DIRECT TAXES ON ECONOMIC GROWTH IN REPUBLIC OF NORTH MACEDONIA

The main objective of this paper is to investigate and determine the nature of the relationship between direct taxes and economic growth in Republic of Macedonia, utilizing quarterly time series covering time spin 2000 – 2015. Furthermore, findings reveal that data are non-stationary in their level and stationary in their first difference based on two test for unit root Augmented Dickey Fuller and Phillips Perron test, respectively. Moreover, Johansen test for co-integration indicate the rank number as one, while evidence from Vector Error Correction model suggest negative and significant effect of Personal Income tax on Real GDP, while Corporate Income Tax is showing positive and insignificant effect on real GDP in Macedonia. Finally, such results can contribute as further recommendation for the Macedonian tax policymakers in the future, since tax rate cuts even though encourage employment, savings and investment, if are not financed by immediate expenditure cuts, will increase budget deficit, therefor reducing national saving and raise interest rates in the long-run, thus reducing positive direct impact on economic growth.

/