Author(s)

Tan Lingfeng ¹, Tong Wanting ¹

Affiliation(s)

¹ School of Innovation and Entrepreneurship, Shenzhen Polytechnic University, Shenzhen, Guangdong, China

Corresponding Author

Tong Wanting

ABSTRACT

The role of taxation theory in economic growth is a subject of significant interest in economic research. Economic growth is a critical indicator to measure the development level of a country or region. As a vital instrument for economic regulation, taxation plays an indispensable role in either promoting or constraining economic growth. This paper aims to explore the impact of taxation theory on economic growth, analyze the views of various economic schools on the relationship between taxation and economic growth, and evaluate the implications of these theories for the formulation of current economic policies. Employing a literature review method, this paper systematically examines the perspectives on the role of taxation from classical economic growth theory to modern endogenous growth theory. By comparing and analyzing the role and function of taxation within different theoretical frameworks, this paper further investigates how tax policies can influence economic growth through their effects on consumption, investment, and technological advancement. The findings of this study reveal that different economic theories provide diverse interpretations of the role of taxation in economic growth. Classical theories emphasize the negative impact of taxation on capital accumulation, while Keynesianism focuses on the role of taxation in regulating aggregate demand. The supply-side school highlights the significance of tax reduction in stimulating production and growth through the Laffer Curve. Neoclassical growth theory considers taxation as an exogenous factor affecting steady-state growth, whereas endogenous growth theory regards taxation as a key variable that drives economic growth by fostering technological progress and the accumulation of human capital. In conclusion, taxation assumes a multifaceted role in economic growth. Prudent tax policies can influence short-term economic fluctuations through their impact on consumption and investment and can also affect long-term growth trajectories by promoting technological advancement and the accumulation of human capital. Therefore, when devising tax policies, it is essential to consider their impact on both the short-term and long-term growth of the economy.

KEYWORDS

Tax Policy; Economic Growth; Economic Theory; Endogenous Growth; Technological Progress

CITE THIS PAPER

Tan Lingfeng, Tong Wanting, The Role of Taxation Theory in Economic Growth. Financial Engineering and Risk Management (2025) Vol. 8: 73-78. DOI: http://dx.doi.org/10.23977/ferm.2025.080109.

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