Tax Revenue and Economic Growth in Emerging Markets: Is Financial Development Relevant?
The study investigated the impact of taxation on economic growth in emerging markets using the dynamic generalized methods of moments (GMM), fixed effects, pooled ordinary least squares (OLS) and random effects methods with panel data ranging from 2008 to 2018. The research also examined whether financial development is relevant in enhancing taxation’s impact on economic growth in emerging markets. Tax revenue was found to have had a significant positive impact on economic growth under the dynamic GMM and random effects whilst financial development’s significant positive influence on economic growth was confirmed under the fixed and random effects methods. The study also found out that the complementarity between taxation and financial development had a significant positive impact on economic growth in emerging markets under the dynamic GMM and pooled OLS econometric estimation approaches. In other words, financial development was found to be a channel through which taxation enhances economic growth in emerging markets. Emerging markets are therefore urged to develop and implement robust tax revenue generating and collecting and financial development policies in order to enjoy sustainable long-term economic growth prospects.
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