Tax Revenue and Economic Growth in Emerging Markets: Is Financial Development Relevant?
Keywords:
Tax Revenue; Complementarity; Financial Development; Emerging MarketsAbstract
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.
References
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36. Tsaurai, K. (2018). An empirical study of the determinants of banking sector development in the SADC countries. The Journal of Developing Areas, Vol 52 (1), pp. 71-84.
37. Volckaert, K. (2016). The role of the financial sector in tax planning, TAXE2 Special Committee of the European Parliament.
2. Akram, N. (2016). Financial sector activities affect tax revenue in Pakistan? The Lahore Journal of Economics, Vol. 21(2), pp. 153-169.
3. Ali, A.A. Ali, A.Y.S. and Dalmar, M.S. (2018). The impact of tax revenues on economic growth: A time series evidence from Kenya. Academic Research International, Vol. 9(3), pp. 163-170.
4. Arellano, M. and Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, Vol. 58(2), pp. 277-297.
5. Babatunde, O.A. Ibukun, A.O. and Oyeyemi, O.G. (2017). Taxation revenue and economic growth in Africa. Journal of Accounting and Taxation, Vol. 9(2), pp. 11-22.
6. Capasso, S. and Jappeli, T. (2013). Financial development and the underground economy. Journal of Development Economics, Vol. 101 ( ), pp. 167-178.
7. De Gregorio, J. (1996). Borrowing constraints, human capital accumulation and growth. Journal of Monetary Economics, Vol. 37(1), pp. 49-71.
8. Egbunike, F.C. Emudainohwo, O.B. and Gunardi, A. (2018). Tax revenue and economic growth: A study of Nigeria and Ghana. Jurnal IImu Ekonomi, Vol. 7(2), pp. 213-220
9. Elgin, C. and Uras, B.R. (2013). Is informality a barrier to financial development? SERIEs, Vol. 4 ( ), pp. 309-331.
10. Garba, L.S. (2014). Tax revenue and economic growth in Nigeria. Unpublished thesis. Zaria: Ahmadu Bello University.
11. Gnangnon, S.K. (2019). Financial development and tax revenue in developing countries: Investigating the international trade and economic growth channels. ECONSTOR Working Paper Number 206626.
12. Harrison, A.E. and McMillan, M.S. (2003). Does direct foreign investment affect domestic firms credit constraints? Journal of International Economics, Vol. 61(1), pp. 73-100.
13. Kao, C. (1999). Spurious regression and residual –based tests for co-integration in panel data. Journal of Econometrics, Vol. 90 ( ), pp. 1-44.
14. Kelly, A., 1980. “Interactions of economic and demographic household behavior”, in Easterlin, Population and Economic Change in Developing Countries. Chicago, Chicago University Press.
15. Kimm, G.S. (2019). Financial development and tax revenue in developing countries: Investigating the international trade and economic growth channels. ECONSTOR Working Paper Number 206628.
16. Nnyanzi, J.B. Bbale and Sendi, R. (2018). Financial development and tax revenue: How catalytic are political development and corruption? International Journal of Economics and Finance, Vol. 10 (8), pp. 92-
17. Okon, E.B. (2018). Financial sector development and tax revenue in Nigeria. International Journal of Economics, Commerce and Management, Vol. 6 (6), pp. 93-
18. Cavusgil, S.T. Ghauri, P.N. and Akcal, A.A. (2013). Doing business in emerging markets. Sage Publications. 2nd Edition.
19. Fry, M.J. (1980). Saving, investment, growth and the cost of financial repression. World Development, 8(4), 317-327.
20. Girma, S. Gong, Y. and Gorg, H. (2008). Foreign direct investment, access to finance and innovation activity in Chinese enterprises. The World Bank Economic Review, Vol. 22(2), pp. 367-382.
21. Haslag, J. And Koo, J. (1999), “Financial repression, financial development and economic growth”, Federal Reserve Bank of Dallas, Working Paper Number 99-02.
22. Ilievski, B. (2015). Stock markets and tax revenue. Journal of Applied Finance and Banking, Vol. 5(3), pp. 1-16.
23. International Monetary Fund. 2015. World Economic Outlook: Adjusting to Lower Commodity Prices. Washington (October).
24. Kotlan, I. Machova, Z. and Janickova, L. (2011). Vliv zdaneni na dlouhodoby ekonomicky rust, Politicka ekonomie, Vol. 59(5), pp. 638-658.
25. Loganathan, N. Ismail, S. Streimikiene, D. Hassan, A.G. Zavadskas, E.K. and Mardani, A. (2017). Tax reform, inflation, financial development and economic growth in Malaysia. Romanian Journal of Economic Forecasting, Vol. 20(4), pp. 152-165.
26. Lucas, R., (1988). On the mechanics of economic development. Journal of Monetary Economics, Vol. 22(1), pp. 3-42.
27. Nor, N.H.H.M Ripain, N. and Ahmad, N.W. (2015). Financial development and FDI-Growth nexus: Panel Analysis. Proceeding of the 2nd International Conference on Management and Muamalah, pp. 435-446.
28. Petrescu, I.M. (2013). Financial sector quality and tax revenue: Panel evidence. Mimeo, University of Maryland.
29. Robinson, J. (1952). The Generalisation of the General Theory. In the rate of interest and other Essays. London: MacMillan.
30. Romer, P. (1986). Increasing returns and long run economic growth. Journal of Political Economy, Vol. 94(5), pp. 1002-1037.
31. Rybcynski, T.M. (1984). Industrial finance system in Europe, US and Japan. Journal of Economic Behavior and Organization, Vol. 5(3-4), pp. 275-286.
32. Soumare, I. and Tchana, F.T. (2015). Causality between FDI and financial market development: Evidence from emerging markets. The World Bank Economic Review, Vol. 29 (Supplement 1), pp. 1-12.
33. Stead, R. (1996). Foundation quantitative methods for business. Prentice Hall. England.
34. Svaleryd, H. and Vlachos, J. (2002), “Markets for risk and openness to trade: How are they related?”, Journal of International Economics, Vol. 57 (2), pp. 369-395.
35. Taha, R. Colombage, S.R. Maslyuk, S. and Loganathan Nanthakumar, L. (2013). Does financial system activity affect tax revenue in Malaysia? Bounds testing and causality approach. Journal of Asian Economics, Vol. 24( ), pp. 147-157.
36. Tsaurai, K. (2018). An empirical study of the determinants of banking sector development in the SADC countries. The Journal of Developing Areas, Vol 52 (1), pp. 71-84.
37. Volckaert, K. (2016). The role of the financial sector in tax planning, TAXE2 Special Committee of the European Parliament.
Published
2021-02-02
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Tsaurai, K. (2021). Tax Revenue and Economic Growth in Emerging Markets: Is Financial Development Relevant? Array. The Journal of Accounting and Management, 11(1). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/498
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