Taxation and Economic Growth Theory

Taxation and Economic Growth Theory examines how taxes influence a country’s ability to grow and prosper. Generally, higher taxes can reduce incentives to invest, innovate, and work, potentially slowing growth. Conversely, lower taxes may encourage economic activities that boost productivity and job creation. However, sufficient tax revenue is essential for funding public services and infrastructure that support economic stability. The theory explores finding a balance—tax rates that generate needed revenue without discouraging economic activity—aiming to promote sustainable growth, improved living standards, and overall economic health.