THE IMPACT OF TAXATION ON FIRM’S PERFORMANCE: EMPIRICAL EVIDENCE ON THE CASE OF CEE COUNTRIES

The performance of the firms is affected by many factors, according to the studies realized in this area. But, of all this factors of influence in this paper we want to focus on a major problem mentioned by all the firms: taxation, and to test its impact on business performance. To see if taxation affects the performance of the firms, we used the data collected for seven Central and Eastern European countries (Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland and Romania) for estimating three regression models, according to the size of the firms analyzed. For measuring the performance of the firms we consider the growth of their value added. And for measuring taxation we use a series of indicators: total tax rate, tax payments, time needed to prepare and pay taxes, profit tax, other taxes paid by firms, labor tax, taxes on income, profits, and capital gains and taxes on goods and services. We also consider as a control variable the real economic growth rate. After applying multiple linear regressions on panel data, our results show that real economic growth rate, profit tax and taxes on goods and services are the main determinants of value added growth of the firm from CEE countries, and implicitly of the firm’s performance. When we extend the analysis according to the size of the firm, we obtain almost similar results; the only difference came from the fact that profit tax does not significantly influence the performance of the large firms. The combined effect of the variables considered statistically significant had a medium impact on the performance of the firms for all the firms and large firms, as shown by R-squared value. These results show that are also other factors which have a higher impact on the performance of the firms, so in future research we intent to analyse also other variables that define taxation and also to extent the sample, by including more countries