growth rate, total capital formation, and non-oil product volume proves that these variables' dependency on

corporate tax rates is weaker. The main finding of the study is that there is a negative relationship between the

volume of non-oil industrial products and taxes in Azerbaijan. Based on the results of the research, it can be

argued that neither corporate taxes nor general taxes have a significant impact on the production volume of

non-oil industrial products in Azerbaijan in the short term. However, there is a negative relationship between

taxes and the volume of production of non-oil industrial products in the long run.

Received: April 19, 2023. Revised: October 2, 2023. Accepted: October 14, 2023. Published: October 27, 2023.

different approaches regarding the necessity or harm

of such intervention. However, depending on the

trend of economic development, the investigation of

this problem and the obtained results were different.

The return to the problem of state intervention in the

economy in any period was related to the existing

problems in the economy in that period. As a result

of this, the economic crisis that occurred in the 30s

of the last century made the discussion of the state's

intervention in the economy more relevant. J.M.

application of Keynes’s theory in the formation of

new economic policy ensured rapid development in

various countries, especially in developed countries,

in the late 20th century, the tendency of the state to

interfere in the economy was reinforced by neo-

classicists. However, the financial crisis of 2008

made it more urgent to examine the state's

intervention in the economy at a certain level.

An analysis of a large number of studies

conducted on state intervention in the economy

economy, did not question the existence of money

in economic activity. However, if the state prints

money, the state already intervenes in the economy

to a certain extent. It is more important not to

discuss whether the state "interferes" or "does not"

in the economy, but it is important to examine "how

much" and "in what forms" it intervenes. That is, is

the intervention through taxes, or intervention in the

form of increasing the level of state

entrepreneurship, public purchases, public

of taxes in kind in the history of almost all

countries. However, the types and amounts of taxes

Each state has changed its tax policy regularly. Even

after the formation of economic science, discussions

about the type and volume of taxes have always

been the subject of serious scientific research. As

we mentioned above, the fact that taxes are the

focus of attention as an object of research is because

it is the main source of income for the state.

Collected taxes allow the state to perform its

functions, for example, defense, development of

education, health care, provision of living for the

elderly population, disabled people, etc.

The fact that the revenues collected from taxes

have a major share in government spending, at first

sight, suggests that the more such revenues, the

greater the financial capacity of the state to perform

its functions. However, considering that tax

revenues come from individuals or business entities

indirectly create new problems for the development

of the economy. Such dual nature of taxes is widely

analyzed in economic theory and empirical studies.

The studies that conduct a cross-country

comparative analysis on the relationship between

allow us to conclude that income and corporate

taxes are important instruments in the country's

economic development.

especially the effects on economic growth, give

different results. Thus, the mechanism and result of

the effects of taxes on economic growth are

different in the theory of exogenous and endogenous

growth. The results of empirical studies performed

in different countries vary from country to country.

According to the Solow-Swan model, which is

the main model of exogenous growth theory, taxes

do not affect the equilibrium level of the economy.

In the long run, the effects of taxes on economic

growth effect. Considering that the Solow model of

economic growth is the most widespread model

related to this problem, we can note that the

economic theory does not take into account the two

poles of the impact of taxes on the economy. The

bipolarity in the essence of any economic indicator

means that there is an optimal value of this indicator

for economic growth or state of well-being. The

optimal value for two opposite poles should be

chosen so that the dual nature of this indicator can

research in this field is continuously conducted and

the obtained results are developed. According to the

approach of some researchers, such as, [6], [7], [8],

[9], and others, taxes can have a negative effect on

the economy because they reduce the income at the

[10], the authors claim that taxes not only have an

effect on economic growth but also distinguish five

mechanisms by which such effects are realized: 1) a

decrease in the propensity to invest; 2) a reduction

in the labor supply; 3) decrease in growth

productivity; 4) decrease in the marginal

productivity of capital; 5) decrease in efficiency of

human capital use.

As we mentioned above, taxes have a dual

nature, unlike some forms of government

intervention. Its increase allows the government to

obtain the necessary funds to perform its functions.

On the other hand, the increase in taxes reduces the

health care, and other issues indirectly create a

positive effect on the economy.

According to the Romer model, which is

considered one of the main models of endogenous

growth theory, taxes can affect economic growth in

1) strengthen the sustainability of economic growth

and the global competitiveness of the economy; 2)

ensure fiscal stability and allow the collection of

funds important for social as well as physical

is that taxation does not affect economic growth.

According to the theory of endogenous growth, the

studied by, [13], [14]. The results of these studies

are that taxation mainly affects the level of savings

of households and investments directed to human

capital and production through these mechanisms.

significant impact on the investment and innovation

decisions of business structures. Differences in

taxation policies between countries have some effect

on the differences between investments in physical

and human capital in firms belonging to these

countries.

Note that the variety of taxes is characterized by

their impact on economic growth at different levels.

The effects of some taxes on economic growth may

be felt more strongly than others. On the other hand,

the effects of taxes on economic growth also depend

on the economic situation in the country.

banking sector, [17], [18], agricultural sector, [19],

service sector, and non-oil industrial sector has

greatly improved the business environment in the

country. However, the tax burden in Azerbaijan is

still high and creates certain difficulties for the

development of small and medium-sized businesses.

flow and innovation. Some studies, such as the

study by, [20], prove that reducing labor tax and

increasing VAT positively affect economic growth

in European Union countries.

A study conducted by, [21], assessed the effects

of tax policies on economic growth in Latin

American countries. They conclude that there is no

evidence that the effects of tax policy on economic

growth are positive, comparing the studies

conducted in the example of Latin America. In the

Chile. The main conclusion obtained is that the

effects of personal income tax on economic growth

in Latin America are not only negative but even

absent. As the main reason for this, researchers

explain that personal income taxes are very low and

the amount of collection is not high. On the other

hand, for some countries, the negative impact of

corporate income tax on economic growth was

included in the study. The effects of consumption

taxes on economic growth are positive.

panel analysis. As a methodology, panel analyses

and Granger causality tests were used. The results of

empirical research on the positive effects of

consumption taxes on economic growth are

consistent with the theory. Also, the negative effects

of labor taxes on economic growth are empirically

confirmed. On the other hand, the relationship

between consumption tax and GDP is Granger and

bidirectional causality. However, the relationship

with the labor tax is one direction.

In the study conducted by, [23], in the case of

Nigeria, data covers the period 1994-2009. White's

test, Ramsey RESET test, Breusch Godfrey test,

Jacque Berra test, Augmented Dickey-Fuller test,

Johansen test, and Granger Causality test were used

during evaluations. The main conclusion of the

study is that the tax policy implemented in Nigeria

during the period 1994-2009 had a positive effect on

In the research, [24], the authors tried to

evaluate the effects of taxes on economic growth in

the long-term period 1980-2018, in addition to

conducting a comparative analysis of studies that

provide different results for Jordan. Based on the

available empirical results, they conclude that the

results of the studies performed in the example of

this country are inconclusive. Thus, in some studies,

positive results were obtained between taxes and

economic growth, and in some studies, negative

taxes in the long run for Jordan. At the core of such

between oil revenue tax and economic growth in the

Nigerian economy, as well as the effects of

corporate income tax on economic growth and non-

oil revenue efficiency. The main data and

quantitative indicators used in the study were taken

from the statistical bulletin of the Central Bank of

the country, but some data were obtained by the

survey method. Multivariable regression analysis

was used during the evaluations. Estimates show

that for the Nigerian economy, there is a strong

correlation between tax on oil profits and economic

growth. There is also a strong relationship between

non-oil revenues and economic growth. However,

there is no relationship between income tax and

economic growth. The researchers suggest that the

government should improve tax administration and

and indirect taxes on economic growth in 27

member states of the European Union. The research

covered the period 1995-2010. During the research,

the tendency of tax burden distribution in the

member states was studied for 15 years. Then, the

effects of tax collection on economic growth were

investigated through regression analysis. The main

conclusion of the study is that it is more favorable to

use direct taxes in terms of supporting economic

it is empirically confirmed that the increase in taxes

in the example of South Africa has a negative effect

on economic growth. During the econometric

calculations, along with the economic growth

indicator, trade openness, and capital indicators

were also included in the model. Empirical analysis

shows that economic growth, taxes, capital, and

trade openness indicators are cointegrating

indicators. Considering the results obtained, the

researchers note that fiscal policy is important for

method. In addition to economic growth and taxes,

capital accumulation, investment, human capital,

model. The neoclassical growth model was used as

a model. Using the panel analysis method, the

researcher empirically proves that corporate taxes

seriously hinder economic growth. Personal income

taxes also have a negative impact on economic

growth. The effects of property tax on economic

growth are not statistically significant. Considering

these results, the researcher suggests that OECD

countries should reduce corporate taxes and

personal income taxes. The loss of budget revenues

as a result of tax reduction can be compensated

through indirect taxes.

taxes on economic growth were empirically

analyzed in the example of Nigeria. At this time,

data covering the years 1980-2013 was used. The

long-term relationship between taxes and economic

indicators for the short-term period. Autocorrelation

and heteroskedasticity diagnostic tests were also

performed to check the adequacy of the model. The

obtained results confirm that there is a long-term

relationship between taxes and economic growth.

However, in the case of Nigeria, it is impossible to

confirm the existence of such a relationship for a

short-term period.

A study conducted by, [30], examined the

relationship between the marginal income tax rate

Thus, a comparative analysis of the economic

literature related to empirical studies suggests that

the effects of taxes on economic growth are of

different natures in different countries. However, the

effects of direct taxes on economic growth are

negative for the long term in almost all countries.

Unfortunately, the study of this problem in the

example of Azerbaijan has not been carried out.

production and export of oil mainly take place based

on "production sharing agreements" or other types

of agreements signed between oil-rich countries and

multinational companies, and the terms of such

agreements are not affected by tax administration or

tax rate policies in local countries. Therefore, in our

study, we will involve non-oil-rich countries in a

panel analysis to determine the general trend to

determine the impact of taxes on economic growth.

The results obtained as a result of such an analysis

Foundation research group, [32]. To estimate the

effects of total tax rates and corporate taxes on

economic growth, as well as the volume of non-oil

industrial products, we will use double regression

equations:

production of non-oil industrial products 1) from

First, let's try to quantify the effects of the total

tax rate on the volume of GDP, economic growth,

total capital formation, and the volume of non-oil

industrial production in the non-oil-rich former

Soviet republics. For this purpose, we will use (1) a

simple panel analysis. 1) total tax rate for these

countries; 2) corporate tax rate; 3) GDP volume; 4)

economic growth; 5) total capital formation and 6)

non-oil industrial products volume indicators will be

used. Despite the fact that these countries involved

all the countries involved in the study, both total

taxes and corporate taxes decreased significantly in

the period between 1996 and 2021. In that period,

the volume of GDP per capita has an increasing

trend in almost all of these countries. However, it is

noteworthy that the volume of GDP in the Baltic

countries is much higher than in other countries. In

the period covered by the research, the general

growth trend in the dynamics of the volume of non-

oil products is noticeable. To determine the

If the dependent and independent variables are

be continuously checked with other tests. If the

stationarity of the dependent and independent

variables is confirmed, it is appropriate to check the

the first variables it is more appropriate to build. If

there is no stationarity between I(0) and I(1) or if the

goal is to check the results of the research for a long

period, then it is more appropriate to check the

cointegration between these variables. In this case

1) absence of intersection and trend (

   ); 2) where there is an intersection, but

no trend (

stationarity of the time series  be confirmed

according to the regression equation   

   for all three regression models given in

the first column of Table 2. If such stationarity

exists, then we will argue that there is cointegration

between 

in regression dependence for the long run.

After checking the stationarity of the indicators

at the I(0) or I(1) level, as well as the presence of

Depending on the purpose of the study, one or two-

way Granger causal relationships will then be tested.

A panel analysis of the relationship between total

tax rates and per capita GDP volume, economic

growth rate, total capital formation, and non-oil

product volume is presented in Table 1. It can be

seen from the table that total tax rates have a

large, and without eliminating it, an adequate model

cannot be imagined. At the same time, the effect of

the total tax rate on the per capita economic growth

indicator is also positive. However, this relationship

is not so strong. The effect of total taxes on total

capital formation is also not strong. Even the

coefficient of determination is at the level of 0.04.

That is why the dependence of total capital

formation on total taxes can be considered weak.

Such a weak dependence is also observed between

of determination means that the relationship is not at

a significant level.

The fact that GDP volume, economic growth,

total capital formation, and volume of total non-oil

products do not depend on total tax rates leads to the

conclusion that taxes do not play a significant role

in the production function in these countries. On the

other hand, the positive coefficient in the

obtained results claims that the total tax rates are

less than optimal.

capital formation, and the volume of non-oil

industrial products depend on corporate tax rates.

According to the results of the balanced panel

analysis based on equation (1), the coefficient of

determination in the dependence of "volume of non-

oil industrial products" on "corporate taxes" is at the

it shows that there is a certain level of connection.

However, for the model to be adequate, it is

necessary to eliminate autocorrelation.

market to market relations. The dynamics of

indicators on the total tax rate in Azerbaijan (%) are

presented in Figure 1. Similarly, the dynamics of

corporate tax rate indicators in Azerbaijan (%) are

presented in Figure 2.

volume per capita; b) economic growth rate; Panel

analysis of the relationship between c) total capital

capital formation and d) volume of non-oil products

worldwide decreased by 13 percentage points in

is not found in the economic literature to prove how

optimal such a tax rate is by scientific methods.

However, the main fact that attracts attention is that

there was no continuous increase in the volume of

non-oil industrial products during that period. Thus,

although the growth was continuous until 2015, the

sharp decrease that occurred as a result of the

devaluation of the manats (the national currency of

Azerbaijan) was observed with continuous growth

again in the following years. However, in all cases,

also provide an increase in budget revenues in the

short term. But for the long term, due to the

weakening of the business environment, the activity

of taxpayers, as well as budget revenues, may

decrease faster. On the other hand, reducing

corporate taxes more than the optimal level hurts

economic activity. Therefore, to increase the impact

of corporate taxes on the economy, especially on

non-oil industries, determining its optimal rate has

important scientific and practical importance. The

on the experience of oil-rich developed countries.

The development of non-oil industries in the

background of the decrease in oil revenues can

create conditions for reducing the import volume of

industrial products necessary for the country's

economy and ensuring the export of some products

in the future. It is important to create more favorable

conditions for businesses working in this field to

achieve a constant increase in the volume of GDP

due to the development of non-oil industries. One

Fig. 5: Dynamics of total capital formation

indicators (US dollars)

Fig. 6: Dynamics of indicators on the volume of

non-oil industrial products (US dollars)

The dependence of Azerbaijan's economy on oil

the economic growth rate increased as a result of the

sharp increase in the export volume of Azerbaijani

oil. During the devaluation of 2015, the growth rate

decreased sharply (Figure 4). That is why the

change of taxes in any direction cannot affect the

change of the economic growth rate. However, what

we said are only assumptions and they need to be

clarified by econometric calculations.

During the last 30 years, the dynamics of total

capital formation (total domestic investment) in

is strong. However, since investments directed to

the oil sector have an important weight within this

indicator, its dependence on tax rates raises certain

doubts. Approximately similar dynamics are

characteristic of the volume of non-oil products