Growth Maximizing Tax Rate for Uzbekistan

Over the past two decades of transition from centrally planned economy to market economy Uzbekistan has experienced major structural changes. During this period the objectives of the tax policy were directed towards modernizing the tax system, increasing efficiency and reducing the tax burden on the economy. As a result, the tax revenue-to-GDP ratio decreased from 32.3 percent in 1992 to 22 percent in 2011. While in the early years of independence economic growth was negative, considerable economic expansion has been observed since 2000. In this paper, we investigate the relationship of economic growth and tax revenues in Uzbekistan using quarterly data from 1996 to 2011. The results suggest that the Uzbek government has reached growth maximizing tax rate by reducing tax burden on the economy and further tax cuts will be counterproductive. Moreover, tax policy reform should be directed to address intrinsic issues of the tax system as well as raising direct taxes and lowering indirect taxes.