The dynamics between financial market development, taxation propensity, and economic growth: a study of OECD and non-OECD countries

This study examined the interactions between financial market development, taxation propensity, and economic growth in OECD and non-OECD countries for the period 1961–2019. The aim was to investigate whether there is temporal causality between these variables. Using dynamic panel data modelling, we found long- and short-run inter-linkages between the variables. The study’s most robust finding is that both financial market development and taxation propensity stimulate economic growth in the long run. In contrast, the short-run results are not uniform and depend on the specific measure of financial market development used. Overall, the empirical results suggest that an integrated policy approach in developing financial markets and elevating countries’ taxation propensity will contribute to the economic growth of both the OECD and non-OECD countries.