The discussion on the two variables has exhibit contentions from academicians and policy makers with one school holding on the view that taxation is bad for the economy while the other school believe that taxation is good for the economy. The study finding concluded that non tax revenue had a direct relationship with economic growth. The objective of this paper is to examine the causality between tax revenue and economic growth in india. The impact of economic growth and tax reform on tax. A 99% tax rate is awfully like a 100% tax rate, and if you ignore collection costs, having a 2% tax rate is not much different from having no taxes at all. The economic effects of adopting the corporate tax rates of the oecd, the uk, and canada by scott a. Oil revenue, government spending, economic growth, macroeconomic variables, oman abstract this paper investigates the shortrun and longrun relationships between three main macroeconomic variables in oman using the johansen multivariate cointegration techniques as well as the stationary var for the period between 1971 and 20. Meaning, tax revenue, nontax revenue with classification of public revenue. Tax rates and economic growth congressional research service 1 his report summarizes the evidence on the relationship between tax rates and economic growth, referring in a number of cases to moredetailed crs reports.
According to dalton, however, the term public income has two senses wide and narrow. Fiscal policy for financing sustainable development in africa vi list of tables table 2. To achieve this research objective, relevant secondary data were used from the 2012 statistical bulletin of the central bank of nigeria cbn. January 2007 economic growth with constraints on tax revenues. Gdp by sector percentage of gdp 2011 2016 agriculture, forestry, fishing and hunting. The effect of value added tax on economic growth in kenya. The relationship between taxes and economic growth and government revenue is much stronger for business taxes than for individual taxes. Effects of income tax changes on economic growth brookings. Sources of change in individual income tax liabilities as a share of gross domestic product, calendar years 1994 to 2004 percentage points source. Sources of the growth and decline in individual income tax revenues since 1994 3 cbo table 1. The major component of tax revenue is excise tax 27% while income tax is about 15% and value added tax vat is 17% of the total tax revenue. For example, a bank regulator may charge the banks that it regulates some percentage of their assets for the privilege of. The following is an analysis of the changes to the revenue forecast by major revenue categories. Most developing countries are emerging from the crisis with their fiscal prospects broadly intact imf, 2010a, but with many still facing a fundamental need to raise more revenue from their own tax bases.
Property taxes the real property tax forecast is unchanged from february. The study examines the effect of tax revenue and economic growth of kenya, from 1980 to 2007. Economic growth, crossborder spillovers, income distribution, china. Qingwang guo and bingyang lv 2004 analysis the tax outputcapital ratio, the rate of. 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. Congressional budget office using data from the internal revenue services statistics of income.
Any type of tax distorts economic growth engen, 1996. Instead, economic growth is often the key driver of tax revenues. Relationship between total revenue and gdp bizfluent. That is, it highpoints the channels through which tax revenue impacts and economic growth in kenya. At the same time, growth of sales is a normal aspect of the phenomenal growth of a company. It has led to rising levels of employment and income. Regarding economic growth, the study concludes that there has been an increase in the economic growth in kenya over the years. Taxation of corporations and their impact on economic growth. Nontax revenue v the revenue obtained by the government from sources other then tax is called nontax revenue. Implications for fiscal policy and crosscountry differences joshua aizenman, kenneth kletzer and brian pinto abstract this paper evaluates optimal public investment and fiscal policy for countries characterized by limited tax and debt capacities. Empirical analysis from the study suggested that oil export revenue had a positively significant effect on growth both in the shortterm oil revenue total expenditure real gdp growth % capital expenditure % of gdp. At this stage, however, there is little agreement about federal reserve board, washington. In 2018, domestic revenue, including tax and nontax revenue, was budgeted at 18% of gdp, while actual revenues fared better at 19.
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. Table 2 per capita income and economic growth, syrquinchenery aggregates. Examples of nontax revenue include bond issues and profits from stateowned companies. Revenue based fiscal consolidation and economic growth in. Tax and nontax sources of public revenue to government. The effects of state tax policy on economic growth, entrepreneurship, and employment remain controversial. Education quality in economic growth world bank documents. Thus, according to this view, the priority should be increasing growth rather than reducing debt and, consequently, that much less shortterm fiscal austerity is appropriate. According to the behavior of the budget deficit and the economic growth of sri lanka from 20002016, it could. The journal publishes high quality research that explores the growth process in the contemporary period as. Nontax revenue is the recurring income earned by the government from sources other than taxes. In these studies, researchers used economic development and economic growth interchangeably. 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.
Resource abundance and economic development unuwider. We specifically consider 69 countries with at least 20 years of observations on total tax revenue during the period 1970200921 high. Domestic resource mobilization and long term economic growth in tanzania chimilila, cyril. Nontax revenue money that a government takes in by means other than taxation. All these economic activities generate gainful employment and accelerate economic growth and development in the short, medium and long terms. The result indicated a unidirectional causality between tax revenue and economic. Clearer is the existence of the relationship between tax burden of income tax and vol. We then turn to the relationship of education and economic growth. Nontax revenue financial definition of nontax revenue. Raifu and raheem 2018 had a different approach when researching the impact of government revenues on nigerian. The impact of state budget revenue on economic growth. The income of the government through all sources is called public income or public revenue. Review of literature the detrimental effects of export instability on economic growth and investment were investigated for less developing countries by macbeen and maizels, 1968 for eleven developing countries over the time period 195060 by using single equation regression model. A lot of literature exists on tax revenue and economic growth of nigeria adereti et al.
Value added tax also had positive effect on economy. In india, for example, the contribution of direct taxes to total tax revenue was 18. This paper investigated empirical evidence on contributions of tax revenue for economic growth of. Correlation coefficients of growth in government expenditure and real gdp growth in. Tax revenue and economic growth in india uk essays. Data were sourced from central bank statistical bulletin and extracted through desk. The zero correlation result has yet to be overcome. Washington states advantage throughout the nations period of expansion, and the state should. The relationship between taxes and growth at the state level 921 does not change the results for tax revenues noted above, and generally the tax rate variables do not affect growth. The council of economic advisers october 2017 september 29, 2017 the growth effects of corporate tax reform and implications for wages. The sources of business growth have been subject to a considerable academic attention.
Nontax revenue plays a role in enhancing the national macrocontrol ability, mobilizing the enthusiasm of local governments and departments, making up for the shortage of financial budget funds, setting up public welfare and promoting local economic development. The study uses annual data collected from the economic survey of india, 200809, indian public finance statistics, 200809 published by ministry of finance and handbook of. Tax policies have temporary effect on the growth in the exogenous model while in the endogenous growth model this effect is permanent on economic growth. Tax systems are also used to promote other objectives, such as equity, and to address social and economic concerns. The past, present, and future of economic growth school of social. The following points highlight the nine main sources of government revenue. The journal of economic growth serves as the principal outlet for research in the fields of economic growth and comparative economic development. Taxation revenue and economic growth i n africa onakoya adegbemi babatunde 1, afintinni oluwatobi ibukun 1 and ogundajo grace oyeyemi 2 1 department of economics, babcock universit y, ilishan. Total revenue and economic new scholarlink research. From 2024 to 2029, economic growth and potential growth are projected to average 1. Dynamic relationships between oil revenue, government.
The study examined the impact of tax revenue on the nigerian economy. It showed that there is a significant relationship between non oil revenue and the growth of the nigeria economy. May 30, 2019 while these are extreme cases, they do illustrate the effect of taxes and they are useful guides of what happens at other tax rates. However, the study concludes that the rate of economic has been gradual. Economic benefits of open data european data portal. The 2018 estimate and 2019 projections show economic expansion of 0. Effects of exports instability on economic growth in saarc. Apr 27, 2017 the beneficiaries dont fit anyones reasonable definition of a small business. With the rapid growth of government nontax revenue mainly charged by administrative institutions, the negative impact of nontax revenue on economic growth has gradually emerged and has a trend of spreading and expanding. The effects of tax revenue on economic growth in nigeria1970. A tax is a compulsory levy imposed by a public authority against which tax. Economic growth drives the level of tax revenue tax foundation.
The impact of tax policy on economic growth in nigeria. 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. These data were analyzed using the ordinary least squares regression. The growth in the disposable income of households remains solid, which has a positive impact on. The sample period of the study spans from 195051 to 200809. Introduction the last decade has been an extraordinarily good one for developing countries and their mostly poor citizensso good in fact that it has become commonplace to look upon them as potential saviors of the world economy. The effect of foreign aid on economic growth in developing. January 2007 economic growth with constraints on tax revenues and public debt. Economic growth drives the level of tax revenue tax. In this paper, we extend a previously created model of business. Interest in enhancing revenue mobilization in developing countries is increasing. Sources of the growth and decline in individual income tax. Tax systems are primarily aimed at financing public expenditures.
Economic growth and development economics questions and answers for interview, entry test and competitive examination freely available to download for pdf export. The growth is an important stage of lifecycle for all forprofit organizations. Jay helms, the effect of state and local taxes on economic growth. Domestic resource mobilization and long term economic. Second, revenue neutral income tax reform can provide a modest boost to economic growth. The reduction in one tax may not have much effect if the overall tax burden remains higher than optimal. The results display that tax revenue has a positive significant effect on economic growth. International academic journal of economics and finance, 1 5, 1030. Economic development 177 city of san diego fiscal year 2017 adopted budget key performance indicators performance indicator actual1 fy2015 1. Crude oil export has continued to account for over 80% of the total federal government revenue, while the remaining 20% is contributed by nonoil. Harelimana, 2018 there is a temporary impact on the tax policy exogenous model growth. The finding also revealed that there is no significant relationship between company income tax and the growth of the nigeria economy. After checking the stationary of the variables through adf test. Table 3 savings, investment and net capital flows, three asian regions.
They include hedge fund managers, consultants, and investment managers, who are among the passthrough business owners currently in the 39. Using a framework that in prior research generated significant, negative, and. Effects of exports instability on economic growth 99 2. In 200607 india related, the tax revenue contributed about 81% of the total revenue receipts of the central government, whereas nontax revenue receipts contributed the remaining 19%. This study analyses the impact of nonoil tax revenue on economic growth from 1993 to 2012 in nigeria.
For an overview of the broader issues of these relationships see crs report r42111, tax rates and economic growth, by jane g. 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. Taxation, efficiency, and economic growth by dale w. Public spending was planned at 23% of gdp in 2018 and realized at 23. A spending argument poorer countries also lag behind richer countries in terms of social spending see figure 2. Some researchers estimated the effect of tax revenue on the economic development of nigeria using gross domestic product gdp. Income taxes, economic growth, tax cuts, tax reform. The study found that there exist both short run and long run relationship between economic growth and tax revenue. Ethiopia is one of the fastest developing countries situated in the northeastern corner of africa. The economic effects of adopting the corporate tax rates of. Public expenditure by any governmental authority whether central, regional or local, is financed primarily through tax revenues.
This paper investigates the impact of taxes tax revenue on economic growth of pakistan by using time series data for the period of 19762011. Potentially negative effects of tax rates on economic growth have been an issue in the debate about whether to. Our empirical estimates suggest that a 1 percentage point cut in the corporate tax rate is related to a 0. The past, present, and future of economic growth dani rodrik 1. Role of taxation in financing economic development economics.
From 1978 to 1985, economic growth was realized from oil production, with growth rates as high as 12% amin, 2002. At present, the influence of nontax revenue on the economy is the main view in academia. Revenue used to fund transfer payments retards growth. The impact of the government revenues and expenditures on the. In order to attain this objective, relevant timeseries secondary data were collected from the central. The study period spans economic cycles for about 66 percent of the life of. The result from the test shows that there exists a positive impact of nonoil. The growth in cumulative revenues in the period 2016 2020 was estimated to eur. The nigerian perspective is because the bulk of revenue needed for development purposes is derived from oil. The spread shows that the percentage of the companys income tax to the federal gross revenue. However, one means of generating the amount of revenue for providing the needed infrastructure is through a well. The most important receipts under this head are interest receipts received on loans given by the government to states, railways and others and dividends and profits received from public sector companies.
During fiscal year 2016, new department tactical plans and key performance indicators were developed. After 2019, annual economic growth is projected to slow furtherto an average of 1. In this paper, we focus on how tax changes affect economic growth. The main role of foreign aid in stimulating economic growth is to supplement domestic sources of finance such as savings, thus increasing the amount of investment and capital stock. Some government agencies earn nontax revenue through user fees. Data is analyzed to illustrate the association between the tax rates of the highest income taxpayers and measures of 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. Estimates of annual development financing needs in africa 29 table a2. The growth effects of corporate tax reform and implications. The relationship between economic growth and tax revenues is a debate that has existed for a long time in the living history. This ratio is useful for assessing the current and future implications of revenue and economic growth as they affect fiscal policy. Alternative views of the economic growth and environmental damage relationship 19. Tax revenue is essential to accelerate the economic development basirat et al. Gdp is taken as dependent variable while taxes, exchange rate, life expectancy and trade liberalization as independent variables. This section documents six stylized facts that are particularly. State and local government taxes are a relatively small expense to businesses, and only. One way economists measure the size and economic impact of the government is with the ratio of total revenue to gross domestic product. Solow 1956 and sawan 1956 presented the fundamental views about the endogenous growth theory. A significant share of the tax revenue increase in africa stems from natural resource taxes, while non resourcerelated revenue has increased by less than 1% of gdp over 25 years.