Impact of Trade Openness on Tax Revenue in Transitional Markets
Keywords:
Trade Liberalization, Tax, Transitional Economies, RevenueAbstract
This paper explored the influence of trade openness on tax revenue in transitional markets
employing panel methods with data spanning from 2005 to 2020. It also examined the impact of interaction
between trade openness and financial development on tax revenue in transitional markets using the same
panel methods and data set. The influence of trade openness on tax revenue under fixed effects, random
effects and dynamic GMM (generalized methods of moments) was positive and significant. Trade openness’
impact on tax revenue was positive but non-significant in transitional markets according to pooled (OLS).
Financial development also significantly enhanced tax revenue under dynamic GMM, random and fixed
effects and non-significantly increased tax revenue under the pooled OLS. Complementarity variable nonsignificantly
improved tax revenue under the pooled OLS whereas other remaining methods show a
significant positive relationship running from the complementarity variable towards tax revenue. Financial
development is therefore a channel facilitating trade openness’ impact on tax revenue in transitional markets.
Policy implication is that transitional markets should implement policies and strategies aimed at enhancing
trade openness and financial development to be able to generate more tax revenue.
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