Authors: Grigorios Spirakis, Antonios Sarantidis

Title: Tax Policy and Economic Growth in Greece

Abstract

In this paper we examine the relationship between tax policy and economic growth. The aim of this study is to analyse and to estimate the impact that frequent changes and modifications of tax policies have on the economic growth of Greece. The sample is based on time series data with annual observations from 1980 to 2014. In the empirical part we implement the methodologies of PCA, OLS regression, GARCH and GARCH-M. We measure tax policy as the annual number of tax legislation changes that have a direct negative impact on the income of citizens and businesses. A new tax policy index is constructed for Greece, by using the tax policy variable and five other variables as proxies. Apart fro the GDP variable, we also use the foreign direct investments as a dependent variable in order to find the posiible effect of tax policy. The results suggest that the new TP index has negative effects on GDP growth while it has no effects on FDI. The research provides to policy makers insights into the effects that an unstable tax enviroment has on FDI and Economic growth.