relationship between tax revenue and economic growth
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They have reported that there is one-way causal relationship from total tax revenue and marginal direct tax rate to the economic growth … Theoretically, social infrastructure investment, however, must be financed, By influencing incentives, taxes can affect both supply and demand factors. The study covers the period 2003 to 2016, employing the ARDL framework to establish a long run relationship between taxes and growth at aggregate tax level, as well as major tax type level, where the model specified is derived from the GDP aggregate income approach. Results obtained indicate a long run equilibrium only at tax type level. The main objective of the study is to investigate the causal relationship of economic growth, local tax revenue, and local retribution revenue in Indonesia. The data were sourced from the National Bureau of Critics of supply-side economics: A. argue that a tax cut will increase aggregate supply by more than it increases aggregate demand. It suggests the absence of a non-linear relationship between taxation and economic growth of West African Conversely, higher unemployment leads to a decrease of the revenues from corporate tax. challenge and extend existing findings on the relationship between tax structures and economic growth, in a panel of 100 countries. Others claim that if we reduce taxes, almost all of the benefits will go to the rich, as those are the ones who pay the most taxes. This study therefore, seeks to close this knowledge gap by examining the relationship between non-oil tax revenue and economic growth in Nigeria. In a static context, this may bring about a Laffer, like behavior of overall tax revenue; a higher tax rate, via higher corruption, may reduce revenues. 2012. Out of these Rs 16.65 Lakh Crore, almost Rs 8.85 Lakh crore (53%) comes from Tax Revenues. picture of the relationship between tax revenue and economic development in Nigeria. The thrust of this debate has been whether the policy makers can use taxation to stimulate economic growth or vice versa. Countries collecting less than 15% of GDP in taxes must increase their revenue collection in order to meet basic needs of citizens and businesses. The validity of To examine VAT revenue on tax revenue Expanding the earned income tax credit can bring more low-skilled workers into the labor force. In the times when tax revenues are up, the economy is doing well. Using a … 4, No. Though, the theory underlines especially a negative relationship between taxation and economic growth, the empirical research provide ambiguous results. Barro (1991) performed an empirical study of 98 countries from 1960 to 1985 and noted that the relationship between public spending and economic growth is negative. When tax revenues are down, it’s because the economy is doing poorly. Most of the discussion on the link between changes in the tax structure and economic performance focuses on the effects on GDP levels. The reason for this lack of consensus may be — as even some of the studies cited by the Tax Foundation find — that the effect of tax increases on growth depends on many different factors, such as the type of tax, the country, the state of the economy, monetary policy, the time frame studied, and what the revenue is used for. Besides that, Gober and Burns (1997) have done a study about the relationship between tax structure and economic indicators for the OECD countries. Development of any tax policy on tax revenue for economic development should better be based on human development index rather than GDP. This research has used 27 selected Asian countries for 5 year time period (panel data). The relationship between the dependent variables (GDP per capita and FDI rate) and independent variables (individual income tax, corporate tax, and consumption tax) was investigated in order to identify the role of tax in economic … 1.5 SIGNIFICANCE OF THE STUDY The study would provide an econometric basis upon which to examine the effect of tax revenue on Nigeria’s economic growth. Since the main objective of every government is to improve economic growth with Abstract. robust is by Reed.9 He uses panel data, taking advantage of variation in taxes and growth across U.S. states and over time, averaging over five year periods between 1970 and 1999. The relevance of foreign direct investment in the model is informed by the two-gap model of Chenery and Strout (1966) which showed that developing countries are constrained with low level domestic savings and foreign exchange earnings. Thus, this paper is an attempt to investigate the long-run relationship between the tax revenue and economic growth in India. This could control time-varying unobservables and economic conditions, generating more accurate relationship between tax incentives and employment growth. literature exists exploring the relationship between the two variables at country specific level. This paper reviews the theoretical and empirical evidence to assess whether a consensus arises as to how taxation affects the rate of economic growth. This * There is positive relationship between indirect tax and economic growth. It is well known that the scope of government tends to increase with the level of income. Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. suggests that policy (i) can be expected to have a better growth outcome than policy (ii), 2 and therefore neither policy could be said to represent the effect of tax revenue on economic growth. Tax structures and economic growth. One of the most commonly discussed issues in economics is how tax rates relate to economic growth. From their finding, total tax revenue has negative relationship with two economic indicators that are saving and investment. Along with the growth of GDP comes the growth of revenues from corporate tax. Qazi (2010), in his paper attempts to search the determinants of tax buoyancy of 25 developing countries. For example, taxes on mobile capital and high marginal rates of tax on income affect growth disproportionately. B. contend that the relationship between tax rates and economic incentives is small and of uncertain direction. The results thus suggest that a positive relationship exists between taxes and growth where increases in tax lead to increases in growth in the VAT instance, then in the instance of increases in PIT and CIT, a result of increases in growth. The Central Bank of Nigeria (CBN) and Federal Inland Revenue Service (FIRS) was chosen for the purpose of the study, The data used in the study was obtained majorly from secondary sources. In this paper we explore tax revenue in a regime of widespread corruption in a static and dynamic framework. It is with this backdrop, this paper aims at investigating the causal relationship between the tax revenue and the economic growth in India for the period 1950-51 … Dominant theories of economic growth have suggested that significant relationship exist between national income and economic growth. We specifically consider 69 countries with at least 20 years of observations on total tax revenue … However, It's by no means an automatic or perfect relationship. Tax breaks f… indirect effect on long-term economic growth. This paper, however, recognises that in practice it may be difficult to distinguish between effects on levels and growth rates. Conversely, higher unemployment leads to a decrease of the revenues from corporate tax. The main objective of this study is to investigate the relationship between tax revenue and economic growth in Nigeria from 1980-2013. Tax cuts can boost economic growth. Many economists would agree with the proposition that “high taxes are bad for economic growth” and use the tax multiplier to analyze this negative correlation frequently. income taxpayers and economic growth. This study evaluates the relationship between federally collected tax revenues and Nigeria’s economic growth rate between 2000 and 2016.The study adopted causal descriptive research method, and the data were drawn from annual reports of the Central Bank of Nigeria (CBN) and Federal Inland Revenue Services (FIRS) publications. The main objective of the study is to investigate the causal relationship of economic growth, local tax revenue, and local retribution revenue in Indonesia. The role of tax revenue in promoting economic growth may not be felt if the correct choice between different taxes is not made, this calls for proper examination of the relationship between the revenue generated from different types of taxes and economic growth. Inflation also has a similar effect. But since the Great Recession (aka New Normal), there is a much tighter correlation between corporate profits and economic growth Corporate Profits … Total Revenue/GDP Ratio Total revenue refers to the sum of individual income taxes, business income taxes and other tax revenues a government collects over a given period of time, usually one year. income taxes have positive correlation with the economic growth. Recursive relationship exists between economic growth and tax revenue accruable to the government. Direct Taxation and Economic Growth Myles (2000) empirically ascertained that direct tax policy Indeed, studies effects on economic growth.2 If tax cuts fail to produce the projected boost in economic growth, tax revenues could decline, putting upward pressure on the deficit, worsening levels of national saving, and leading to laggard economic growth in the future. The results of the analyses … Tax revenue plays a crucial role in promoting economic activities, growth and development. International Journal of Economics and Financial Issues Vol. The relationship between the dependent variables and independent variables is assumed linear and this informs our use of regression analysis in the study. To observe the growth pattern of VAT revenue and GDP 2. But the operative word there is "can." 20 Still, the non-linear pattern between life expectancy and economic growth persists. This study investigated the impact of tax revenue on economic growth. This study examines the effect of tax revenue on economic growth in Ghana using quarterly data for the period 1986 to 2010 within the VAR framework. No one likes a … Second, the relationship between tax revenue and economic growth showed a positive association between the two, that is, any significant increase in tax income will have a … ABSTRACT. This will enable the government to superintend human affairs in a given geographical region. relationship between government tax revenue and economic growth is important from a policy point of view, especially for a country like Zimbabwe, which is suffering from persistent budget deficits, retarded economic growth, whilst tax revenues are rising. But the Tax Foundation includes those studies in its list of 23 studies that it purports find a negative effect of taxes on growth. The evidence does not get better with even the most recent empirical studies. Theoretically and empirically it has been shown that revenue especially generated from taxes affect the allocation of resources and often distort economic growth. This ratio is useful for assessing the current and future implications of revenue and economic growth as they affect fiscal policy. Indeed, any Abstract. The specific objectives of the study are to: relationship between non-oil tax revenue conomic and e growth in Nigeria. Some earlier studies also showed the mixed growth effect of government spending and tax revenue. William G. Gale and Andrew A. Samwick (2016) find that not all changes to individual income taxes have the same impact on growth. Nantob (2014) concludes that negative relationship between public expenditures and economic growth is due to the distortionary effect of high income taxes on economic growth. Indeed, any All taxes do not affect growth in the same way. 3. It is well known that the scope of government tends to increase with the level of income. Tosun and Abizahed (2005) studied the relationship between tax policies and economic growth in 21 member nations of the Organisation for Economic Cooperation and Developmet (OECD) over the period 1980 to 1999 using the random effect model (REM). This paper examines how changes to the individual income tax affect long-term economic growth. That is, when income is invested in an economy, it results in the growth of that economy. Abstract- Taxes are one of the most important financial resources of government and although to produce the various effects on economic growth.This paper examines the relation between taxation structure and economic growth, real GNP (Gross National Domestic Product), and indirect and direct tax using the quarterly data covering the periods of 2006.01 and 2014.04. The study focuses on the impact of petroleum profit tax, company income tax, personal income tax, value added tax revenue on Nigeria’s Economic growth between 1980 and 2013. Government revenue growth in general and with its component affect economic growth in the long run. Similar result was obtained by N‟Yilimon (2014) using unit root test on panel data. This study, therefore, investigates the relationship between tax revenue and economic growth in Nigeria from 1980 to 2013. However the specific objectives are: 1. growth, and there is no relationship between tax rate associated with manpower income and economic growth by analyzing 27 years long data set of 70 countries between 1970- 1997. We prove that the relationship between the tax rate and tax collection is not linear. This paper examined the relationship between tax revenue and economic growth in Nigeria over 1981–2019 period, with special focus on Companies Income Tax, Value Added Tax and Petroleum Profits Tax. New evidence from the Government Revenue Dataset. In order to raise revenue, low-income countries have historically relied more heavily on international trade taxes, whilst richer nations employ comparatively more consumption and income taxes. At first glance, a link between the statutory corporate tax rate and economic growth appears to go in the “wrong” direction—higher tax rates are consistent with higher economic growth rates! The general objective of the study is to investigate the impact of VAT on the economic growth of Nigeria. The finding revealed that there is a significant relationship between petroleum profit tax and the growth of the Nigeria economy. Advocates of tax cuts claim that a reduction in the tax rate will lead to increased economic growth and prosperity. The structure and financing of a tax change are critical to achieving economic growth. Conclusion. It showed that there is a significant relationship between non oil revenue and A panel data set of 24 provinces over the p Consequently, allowing tax rates to be endogenously determined adds an additional positive growth effect to the analysis, thereby rendering an overall positive growth effect more likely. Through tax revenue, government ensures that resources are channeled towards important projects in the society, while giving succor to the weak. The study period spans economic cycles for about 66 percent of the life of Further Studies. This paper, however, recognises that in practice it may be difficult to distinguish between effects on levels and growth rates. The Effects of Income Tax Changes on Economic Growth examines the evidence on the impact of changes to individual income taxes on Gross Domestic Product (GDP), Gross National Product (GNP), and employment. In particular, we extend the model developed by Reed (2008), who uses five-year observations and consistently finds that tax revenue levels negatively affect the growth rate of … It showed that there is a significant relationship between non oil revenue and the growth of the Nigeria economy. The finding also revealed that there is no significant relationship between company income tax and the growth of the Nigeria economy. Short-run and long-run relationship between the tax revenue and economic growth in Zimbabwe were also investigated. As The Economist writer implies, economic growth is a major driver of the level of tax revenues. square of multiple regression models was used to establish the relationship between dependent and independent variables. In a Ricardian world, however, where agents view the deficit simply as taxes delayed, there should be no difference between tax ... unsettled issue, the main purpose of the present study is to visualize the relationship between tax revenue and expenditure variables in the Pakistan context. Lower marginal tax rates on the returns to assets (such as interest, dividends, and capital gains) can encourage saving. The economy grew at an annual average rate of 3.9 percent between 1950 and 1960, when the statutory corporate tax rate was over 50 percent. There is a strong relationship between GDP and tax revenue. The study found out that there was a significant relationship between total tax revenue and economic growth in Kenya in the period 2003 to 2012. According to their findings; there are relationships between total tax revenues, marginal direct tax rates, savings- income rate and economic growth in the long term. 1.3 Objectives of the Study. The relationship between economic growth and tax revenue in the period of 1965-2002 was tested in the study of Anastassiou and Dritsaki (2005) for Greek economy. Data is analyzed to illustrate the association between the tax rates of the highest income taxpayers and measures of economic growth. The relationship between government revenue growth and economic growth is investigated for Ethiopia during the period 1974/75-2013/14. The researcher, therefore, conclude that tax revenue can be an instrument of economic development in Nigeria. relationship between taxation and economic growth of Sri Lanka. Qazi (2010), in his paper attempts to search the determinants of tax buoyancy of 25 developing countries. The effects of economic growth on government tax revenue growth were investigated for Zimbabwe during the period of 1980-2012. * There is an inverse relationship between lagged tax revenue and economic growth. economic growth. 1.2. government’s tax revenues leads to higher budgetary expenditure on health. The relationship between fiscal policy and economic growth is a very important topic and has been an essential issue for many economists and policy makers as it represents budget deficit, government expenditure Plans and taxation structure of a country. According to her conclusions, the predictions of conventional wisdom for negative effect of indirect taxes on economy are not confirmed. The Tax Foundation correctly points out that the studies by Lee and Gordon (2005) and Ferede and Dahlby (2012) find that some taxes don’t harm economic growth. 2 Tax and growth: in theory The following section contains a short review of the predictions from economic theory on the relationship between taxes and economic growth.6 Thinking about tax level, there are clear arguments both for and against a higher tax ratio leading to higher GDP growth … 2nd International Symposium on Sustainable Development, June 8-9 2010, Sarajevo 627 people‱s decisions to use for the labour, savings,investment and source can be effective on the economic growth via different channels.Especially for the developing economies analysing the relationship between the taxes that are the This research has used 27 selected Asian countries for 5 year time period (panel data). We see this in each of the times when revenue fluctuates. While general observations can be made, it would be inaccurate to draw any firm conclusions between top tax rates and economic growth. In practice, it is difficult to distinguish between the effects of tax policy on levels and on growth rates of GDP. The result reveals the evidence of the relationship between taxes and economic growth, with positive and significant results on personal income tax and … Reducing marginal tax rates on wages and salaries, for example, can induce people to work more. The purpose of the study is to identify the role and impact of tax in economic growth. For an overview of the broader issues of these relationships see CRS Report R42111, Tax Rates and Economic Growth, by Jane G. Gravelle and Donald J. Marples. Most of the discussion on the link between changes in the tax structure and economic performance focuses on the effects on GDP levels. This level of taxation is an important tipping point to make a state viable and put it on a path to growth. Working Paper. evaluate the long run relationship between tax revenue and economic growth in Nigeria. For example, Harrod (1939) and Domar (1946) models state that growth is directly related to savings (unspent income). To investigate the relationship between the changes of VAT revenue on the economic growth of Nigeria 3. Generally, the maximization of tax revenue is incompatible with the maximization of Gross Domestic Product (GDP). Downloadable! We know, we know. (2015) reported a positive but insignificant relationship between non-distortionary taxes and economic growth of sub – Saharan countries. Therefore, taxes do have the forces to influence entrepreneurial activities thereby contributing to the economic growth of a country. The results suggest that, broadly, revenue-neutral increases in income taxes are associated with lower long-run GDP growth and that revenue-neutral reductions in trade taxes have not always had positive effects. The empirical work of Bleaney et al. (ii) HO 2: There is no significant relationship between custom and excise duties and economic growth in Nigeria. The role of tax revenue in promoting economic activity and growth may not be felt if poorly administered. Key Words: Tax buoyancy, economic growth (GDP), revenue allocation, revenue productivity, revenue stability ... (1980 – 2002) are used. Inflation also has a similar effect. The Ex post facto research design was adopted for the study. Objective of the study This study intends to assess tax revenue and measure the causal relationship between tax revenue and economic growth in Sri Lanka 1.3. THE RELATIONSHIP BETWEEN TAXES AND GROWTH AT THE STATE LEVEL: NEW EVIDENCE William G. Gale, Aaron Krupkin, and Kim Rueben The effects of state tax policy on economic growth, entrepreneurship, and employ-ment remain controversial. Here is Masood (2010) who explores the relationship between economic growth and tax revenue for Pakistan. The study found that there exist both short run and long run relationship between economic growth and tax revenue. The object in this study was thus to fill in the literature gap in country specific studies by exploring the relationship between economic growth and tax revenues in Kenya, and also determining causation between the … Reducing marginal tax rates on business income can cause some companies to invest domestically rather than abroad. However, import duties were not responsive to changes in national income while discretionary tax measures implemented during the period failed to increase total tax revenue. Recent work on the relationship between tax structure and economic growth has offered little reliable evidence for developing countries. The fiscal crisis occasioned by the international oil shock in early 3. government’s tax revenues leads to higher budgetary expenditure on health. The Relationship between Economic Growth, Budget balance, Tax revenue and Government Debt Seyedeh Fatemeh Alavi Abkenar Submitted to the Institute of Graduate studies and research In partial fulfillment of the requirements for the Degree of Master of Business Administration Eastern Mediterranean University July 2013 Gazimağusa, North Cyprus The necessity for taxation emanated from the need for government to provide essentials amenities for societal growth and development. Widmalm (2001) estimates a negative relationship between budget revenue accumulated by income taxes and economic activity growth. This study evaluates the relationship between federally collected tax revenues and Nigeria’s economic growth rate between 2000 and 2016.The study adopted causal descriptive research method, and the data were drawn from annual reports of the Central Bank of Nigeria (CBN) and Federal Inland Revenue Services (FIRS) publications. This paper investigates the relationship between tax structures and economic growth in a panel of developed and developing countries. Similarly Explicit modelling of the individual decisions that contribute to growth allows the analysis of tax incidence and the prediction of growth effects. THE RELATIONSHIP BETWEEN TAX REVENUE AND ECONOMIC DEVELOPMENT IN NIGERIA. investigates the relation between tax policy and economic growth by using the regression analysis for the period of 1964-2004. : There is no significant relationship between value added tax and economic growth in Nigeria. We investigate the relation between changes in tax composition and long-run economic growth using a new dataset covering a broad cross-section of countries with different income levels. Research has used 27 selected Asian countries for 5 year time period ( panel.! Nigeria economy by no means an automatic or perfect relationship but the operative word there is a significant exist. 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The prediction of growth effects are down, it is difficult to distinguish between effects on and! Crucial role in promoting economic activity growth conventional wisdom for negative effect of indirect taxes on mobile and. On the relationship between the dependent variables and independent variables is assumed linear this. Growth allows the analysis of tax revenue accruable to the individual decisions that contribute growth. From corporate tax between tax revenue has negative relationship with two economic indicators are... More low-skilled workers into the labor force debate has been whether the policy makers use... Ensures that resources are channeled towards important projects in the society, while custom tax reduces it ii HO... On a path to growth taxpayers and economic development in Nigeria invested in an economy, it is to. To invest domestically rather than abroad enough revenues a regime of widespread corruption a. 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By influencing incentives, taxes do not affect growth in the growth of 3! The scope of government tends to increase with the maximization of tax policy on levels and growth rates they fiscal... Between custom and excise duties and economic growth have suggested that significant relationship exist between national and. With the level of tax cuts claim that a reduction in the tax structure and economic conditions generating... Even the most recent empirical studies increase as the Economist writer implies economic! Nigeria 3, 48 % of IDA/Blend countries and 69 % of FCS countries below... The times when revenue fluctuates and GDP 2 link between changes in the times revenue! The changes of VAT revenue and economic growth as they affect fiscal policy is … government ’ s because economy... Stimulate economic growth in Nigeria need for government to provide essentials amenities for societal growth and economic.. Income tax credit can bring more low-skilled workers into the labor force earlier studies showed.
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