True or False?
The statement is basically false. While it is true that a GST or VAT will lead to greater growth to the extent that it leaves some fraction of domestic savings untaxed and therefore taxes consumption relatively more than would an equivalent proportional income tax, why should we conclude that a greater growth rate of domestic output is a good thing? In the absence of relevant externalities, the choice as to the socially efficient rate of growth should be determined by people's choices as to their desired inter-temporal path of consumption. Tax-policy-induced additional growth will make the average person worse off rather better off. The only way an economic analyst could justify the statement would be under conditions where most members of the community obtain utility from a situation where other people's future incomes are higher even though those people have no preference for greater future consumption relative to current consumption. A greater growth rate could then be socially optimal although not socially efficient.
One basis for an external preference for economic growth would be the effects on the incomes of the currently poor. Forcing them to save more would increase their future income and extricate them from their current poverty. Of course, given that everyone in the economy is induced to save more, the incomes of all income groups will rise, quite possibly in similar proportions. Thus, only an absolute measure of poverty, as distinct from relative income equality, would be appropriate in providing justification for policies that tax consumption relative to savings.
One situation where a greater growth rate would be both socially efficient and socially optimal arises when there are distortions in resource allocation that tax future relative to current consumption. Here, the most desirable policy would be to remove these distortions. Were that not possible, an appropriate tax on current consumption could be used to offset those distortions and thereby improve the inter-termporal allocation of resources.