Hi May I know, What are the consequences of rising direct tax to the economy as a whole?
Depends on the tax. Income, import, sales, capital gains, or otherwise? Each of them would affect different parts of the economy and it is from these different parts that form a collective whole. Income tax is assumed to decrease productivity and growth as people will be inclined to work somewhere where they can earn more, if possible. Or sometimes when you make more you aren't making that much more because of movement into a higher tax bracket, but by then they will be able to afford creative accountants, probably. Import tax would hurt consumers and oversea economies but helps dosmestic producers with pricing advantages. Sales tax hurt consumers and producers, which is also why many consider Hong Kong, with no sales tax except for alcohol and tobacco, a shopping heaven. Capital gains tax move investments into other places with similar investments, if possible.