Many economists would agree with the proposition that high taxes are bad for economic growth and use the tax multiplier to analyze. Instead, economic growth is often the key driver of tax revenues. Effects of income tax changes on economic growth brookings. Proponents of business tax breaks claim that taxes are a significant factor in the location choices of businesses, and that a state can tax cut its way to economic growth and generate tax revenue in the process. Tax revenue, infrastructural development, foreign direct investment, economic growth. Pdf the study examined the impact of tax revenue on the nigerian economy. Excise taxes, sometimes called luxury taxes, are used by both state and federal governments. Part i of this document discusses four principal determinants of economic growth that tax policy may be able to influence. The effect of taxes on economic growth sacramento state. During the 19652012 period as mentioned above, the top marginal income tax rate on labor income has trended downward and the effective tax rate has fluctuated in a narrower range, while average hours worked has steadily declined see. This thesis examines the relationship between taxes and economic growth.
A good example of this use of excise taxes is the gasoline excise tax. Case study on ethiopia prepared by teigist lemma addis abada, ethiopia. The impact of the government revenues and expenditures on the. Explicit modelling of the individual decisions that contribute to growth allows the analysis of tax incidence and the prediction of growth effects. The impact of taxation on economic growth in south africa. Above all, these will increase the tax revenue base with resultant increase in growth. In the longterm, both cutting the corporate tax rate to 25 percent and moving to full expensing would lead to increased total federal tax revenue in the long term due to more jobs, higher wages, and more economic activity. This study focused more on the influence of tax evasion toward revenue collection performance. Pdf this study examines the relationship between tax revenues and the rate of economic growth for greece. Generally, the maximization of tax revenue is incompatible with the maximization of gross domestic product gdp. The tax rate varies from state to state, and the list of taxable goods or services also varies from one state to the next. Sales taxes are an important source of revenue for most states and some large cities and counties.
For the independent variables, this research using the total population, employed persons, consumer price index, and valueadded tax. The impact of the government revenues and expenditures on. Especially taxation of corporations has great importance because a corporate tax. Worryingly, the results of studies such as this have. This study examines the effect of tax revenue on economic growth in nigeria, utilizing time series data for the period spanning from 1970 to 2011. Here is masood 2010 who explores the relationship between economic growth and tax revenue for pakistan. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resources and or foreign aid. Taxes and economic growth page 2 of 3 tax foundation. As we will see, there are good reasons to be skeptical of such a claim, and several decades of.
The countries chosen for this study have embarked on their growth paths uneven economic growth and with uneven tax effort among these countries. The purpose of the study is to identify the role of tax in economic growth. Hence, the collection of data for the database and its computerization are prerequisite conditions for the establishment of an efficient revenue collection and monitoring system. The study found that there exist both short run and long run relationship between economic growth and tax revenue. Advocates of tax cuts claim that a reduction in the tax rate will lead to increased economic growth and prosperity. Tax rates and economic growth congressional research service 3 taxes could affect the hours intensity of work. These researches use the gross domestic product gdp as a dependent variable. The result indicated a unidirectional causality between tax revenue and economic. We specifically consider 69 countries with at least 20 years of observations on total tax revenue. Tax revenue and economic growth in india uk essays. Data were sourced from central bank statistical bulletin and extracted through desk. The study period spans economic cycles for about 66 percent of the life of the country. If you dont want to lose revenue, dont cut tax rates.
Tax reforms and economic growth in nigeria using relevant descriptive statistics and econometric analysis. In january 2003 president bush approved the jobs and growth tax relief reconciliation act of 2003, substantially cutting taxes on business income. The tag model estimates the impact tax changes have on wages, jobs, cost of capital, distribution of income, federal revenue, and the overall size of the economy. This document,1 prepared by the staff of the joint committee on taxation, includes an overview of economic growth and the impact that taxes may have on economic growth. Introduction a tax is a fee charged or levied by a government on a product, income, or activity. Taxation is the primary source of income for a state. It can be regarded as one measure of the degree to which the government controls the economys resources.
As most developing countries strive to achieve economic growth and development through taxation, they face numerous economic challenges. 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. Total tax revenue as a percentage of gdp indicates the share of a countrys output that is collected by the government through taxes. Mar 15, 2017 we challenge the oecd view arnold et al. Contemporary tax policies pursue diversity of policy objectives.
Tax systems are also used to promote other objectives, such as equity, and to address social and economic concerns. The finding also revealed that there is no significant relationship between company income tax and the growth of the nigeria economy. The contribution of taxation to any economy globally cannot be overemphasized. Bush signed the economic growth and tax relief and reconciliation act into law, initiating a multiyear program of reductions in taxes on individual income. Robert lynch found little evidence that state and local taxes are important factors in determining business location decisions or in affecting state economic growth. Economic growth is the basis of increased prosperity. Findings from this study show that hightax countries have been more successful in achieving their social objectives than lowtax countries. Economic growth drives the level of tax revenue tax foundation. Tax effort is defined as the ratio between the actual revenue collected. Pdf taxation revenue and economic growth in africa semantic. All oecd economics department working papers are available on the oecd internet website at. Myles abstract the development of endogenous growth theory has opened an avenue through which the effects of taxation on economic growth can be explored. Tax revenue value 7,926 8,243 10,906 12,265 16,164 18,111 20,716 23,758 27,204.
Tax as we know is a main source of government revenue and the collection of the tax will be used by government for development purposes. Pdf the effects of tax revenue on economic growth in. An empirical investigation for greece using causality analysis. The study focuses on the impact of petroleum profit tax, company income tax, personal income tax, value added tax revenue on nigerias economic growth between 1980 and 20. Pdf the study examines the effect of tax revenue and economic growth. Using a framework that in prior research generated significant, negative, and robust.
The basic objective of this article is to evaluate the impact of both direct and indirect taxes on economic growth of india. This report investigates how tax structures can best be designed to support gdp per capita growth. Economic growth and tax relief reconciliation act of 2001. Effects of income tax changes on economic growth william g. If you want to raise more tax revenue, raise tax rates. The structure and financing of a tax change are critical to. A comprehensive survey of the economic literature on the relationship between taxes and economic development by economist dr. At this stage, however, there is little agreement about federal reserve board, washington. This indicates that the economic growth in india as measured by real gdp causes tax revenue and also tax revenue causes economic growth in india. By leaving more money in the free market, the expectation is that money will. Jorgenson, harvard university and kunyoung yun, yonsei university april 2, 2012 acknowledgements. The effects of state tax policy on economic growth, entrepreneurship, and employment. In addition, the government should utilize the positive relationship between tax and economic growth to realize efficient government investment expenditure that spars growth in turn boosting the revenue levels. Yet, in practice, it is hard to completely separate the analysis of the overall tax burden from that of tax structure.
Interestingly, they have done so with no economic penalty. Chapter overview this chapter presents the study on the impact of tax evasion on revenue collection performance in tanzania. The tax burden is measured by taking the total tax revenues received as a percentage of gdp. The author uses framework of endogenous growth model and finds negative relationship between tax and economic growth. The study examined the impact of tax revenue on the nigerian economy. Tax revenue was captured by government nonoil revenue, while wage employment and economic growth were proxied by wage and salaried workers employees and real gdp respectively. Growth comes from the accumulation of capital both human and physical and from innovations which lead. Only people who purchase gasoline who use the highways pay the tax. Impact of taxation revenue on economic growth of nigeria. Case study on ethiopia prepared by teigist lemma addis. The relationship between taxes and growth at the state level. They found that various tax reforms are positively and significantly related to economic growth and that tax reforms granger cause economic growth.
Taxation, efficiency, and economic growth by dale w. Apart from the revenue function it performs for the government, it is also used to assist the national government to achieve the countrys macro economic objectives in the. Thus, taxation aims not just to raise the necessary funds for government expenditure, but also to contribute to income redistribution, economic stabilization, resource allocation, while at the same time should be supportive to the economic growth. The finds show that the relationship between tax and economic growth is very weak and in practise taxation does not affect the rate of growth. The paper examined the impact of value added tax on revenue generation in nigeria. Apr 29, 2015 the effects of state tax policy on economic growth, entrepreneurship, and employment remain controversial.
Taxation of corporations and their impact on economic growth. The impact of indian taxation system on its economic growth. Samwick, dartmouth college and national bureau of economic research. The tag model estimates the impact tax changes have on wages, jobs, cost of capital, distribution of income, federal revenue, and the overall size of. Dec 22, 2011 in a recent interview the president stated that you cannot lower tax rates and raise revenue without getting it from the middle class and the poor. Economic growth drives the level of tax revenue tax. Gale, the brookings institution and tax policy center andrew a. The results show that legally mandated revenue potentials in countries in eastern europe and.
Taxes and economic growth in developing countries a. To understand how tax policy may change gdp by affecting labor supply, physical capital, human capital, and technological progress, it is useful to think of gdp as being the product of the amount of labor supplied in the economy and the average productivity of that labor. This study investigates the role of valueadded tax vat on the economic growth in china. The study period spans economic cycles for about 66 percent of the life of. Ormaechea and yoo henceforth aoy2012, which examined the relationship between tax structures and economic growth rates, finding that revenue. The economic growth and tax relief reconciliation act of 2001 was a major piece of tax legislation passed by the 107th united states congress and signed by president george w. Data and research on income taxes including oecd tax databases, taxing wages, revenue statistics, tax policy studies. The structure and financing of a tax change are critical to achieving economic growth. Governments use the revenue from this tax to build and maintain highways, bridges, and mass transit systems. We investigate the relation between changes in tax composition and longrun economic growth using a new dataset covering a broad crosssection of countries with different income levels. Economic growth entails an increase in gross domestic product overtime and is mainly linked to tax revenue through its effect on tax base. Tax analysis and revenue forecasting issues and techniques. Tax revenue is the income that is gained by governments through taxation. There is a close link between the eti and the laffer curve, the inverseushaped relationship between tax revenue and tax rates that implies taxes above a certain rate discourage so much economic.
Tax systems are primarily aimed at financing public expenditures. The impact of indirect tax revenue on economic growth. Findings from this study show that high tax countries have been more successful in achieving their social objectives than low tax countries. The case of eu countries baranova veronika, janickova lenka abstract one of the most debated questions in economy is the relationship between tax rates and economic growth.
An empirical case stud y of kenya by esther wairimu gacanja x50761712009 a research paper submitted to the school of economics, university of nairobi in partial. Many are members of free trade areas such as the european union, and as. A revenue neutral growthoriented tax reform would, therefore, be to shift part of the revenue base from income. People often think of tax revenue as a function of tax rates. The taxation revenue on nigeria economic growth comes to lime light considering the incidence of overdependent on oil revenue in nigeria. The study applied the concepts of elasticity and buoyancy to examine the relationship between tax revenue and economic growth in kenya for the period 2002 to 2012. Thus, the reported results provide the evidence of the existence of feedback or bilateral causality between tax revenue and economic growth in india. Economic growth and the role of taxation prepared for the oecd. It aimed to give a detailed examination of the effect of tax avoidance on the economic growth and development in nigeria. 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.
This study used physical capital, human capital, population growth, tax revenue gdp, personal income tax, corporate income tax, consumption tax and property tax as the variables. Pdf the relationship between tax revenue and economic. Whereas direct tax impacts directly the disposable income, the indirect tax impacts the prices of goods and services in the market. This paper examines how changes to the individual income tax affect longterm economic growth. We specifically consider 69 countries with at least 20 years of observations on total tax revenue during the period 1970200921 high. Data in the analysis of the impact of the government revenues and expenditures on the economic growth in romania, quarterly data over the period 1998q1 2014q1 is being used. The study adopts the ordinary least square ols regression technique and established that tax revenue has positive effect on economic growth in nigeria.
The objective of excise taxation is to place the burden of paying the tax on the consumer. It showed that there is a significant relationship between non oil revenue and the growth of the nigeria economy. We study the relationships between per capita gdp, overall tax revenue and tax composition in particular direct vs. The objective of this study was to analyze the relationship between tax revenue and economic growth in kenya for the period 2002 to 2012. The data used for the study is a time series of the period from 19852016. It is also known by its abbreviation egtrra often pronounced eggtra or eggterra, and is often referred to as one of the two bush tax cuts. The tax foundations taxes and growth model is a tax scoring model that evaluates the impact taxes have on the economy. Home topics banking and finance project topics and materials pdf impact of tax. Distribution of federal tax change by expanded cash income percentile. While general observations can be made, it would be inaccurate to draw any firm conclusions between top tax rates and economic growth. This work examined the nature of tax system, benefits of tax revenue and mechanism that can be adopted to properly harness the revenue from taxation in nigeria. Dependency theorists argue that sometimes lowincome earning countries shown evidence of economic growth with. Tax rates and economic growth federation of american. It will simply draw a line between tax revenue and nigerian economic growth.
As we will see, there are good reasons to be skeptical of such a claim, and several decades of research on the relation between state taxes and growth confirm that such claims are vastly overblown and sometimes completely misleading. This work evaluates the effect of tax avoidance and tax evasion on economic growth and development in nigeria 20062016. The paper adds marginally to the empirical literature, showing how the two types of tax revenue influence economic growth in eastern europe, under an extended set of economic and socio. This paper was prepared for the handbook of computable general equilibrium modeling, edited by peter b. Taxation, government spending and economic growth edited by philip booth with contributions from ryan bourne. In the wake of the recent financial and economic crisis, many oecd countries face the challenge of restoring public finances while still supporting growth.
435 847 914 28 48 55 334 1166 598 851 1300 972 518 982 365 219 1006 788 454 252 233 1651 1136 771 530 574 1376 15 140 444 1116 1055 263 945 793 187 295 1273 643 1335 1220 463 735 64