Taxation and economic growth in Post-Soviet countries

Abstract

This study examines the relationship between taxation and economic growth in seven post-Soviet economies—Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Uzbekistan, and Russia—over the period 1999–2023. Using panel data from the World Bank and applying the Long-Term Growth Model (LTGM) alongside an econometric regression framework, this research analyzes the impact of direct and indirect taxation, foreign direct investment (FDI), gross savings, institutional quality, and other key economic factors on GDP growth. The regression results reveal that direct taxes do not have a statistically significant effect on GDP growth, whereas indirect taxes on international trade (IndTx2) demonstrate a positive and statistically meaningful impact at the 5% level. FDI and gross savings emerge as the most significant drivers of economic growth, with both variables showing strong statistical importance at the 1% level. Institutional effectiveness, measured by economic management quality, exhibits a weakly significant positive association with GDP growth, suggesting that better governance may support economic improvements. Investment and population growth, however, do not display significant effects on GDP growth within the analyzed model. The overall explanatory power of the model is moderate, with an R-squared value of 0.256 and an adjusted R-squared of 0.184. These findings suggest that, for post-Soviet economies, indirect taxation, foreign direct investment, and savings play a crucial role in fostering economic growth, while direct taxation has a limited influence. Additionally, governance quality may contribute to improved economic outcomes. The study provides valuable insights for policymakers in structuring taxation policies that support sustainable economic development in transition economies.