Tax Rates Impact on GDP in Poland

In the article tax rates impact on GDP in Poland is analyzed. The analysis is based on dynamic stochastic general equilibrium model (DSGE model). Impulse-response analysis shows that the increase in income tax rate causes the decrease in capital, labour and production. Moreover, capital is partially replaced by consumption, because households minimize consumption fluctuations. The comparison of the effects of increasing taxation of the capital and labour shows that the impact on economy is stronger in case of wage taxes. Consumption taxes, by negative wealth effect, decrease after-tax consumption and capital, but on the other hand, increase labour and production. The direction of impact of consumption taxes on production is in this case opposite than in demand models.