Determinants of tax revenue in upper middle-income group of countries
Keywords:
Tax Revenue; Upper Middle-Income Countries; Panel Data AnalysisAbstract
The study had two main objectives. Firstly, to investigate the determinants of tax revenue in upper middle-income countries. Secondly, to explore the impact of the interaction between foreign direct investment (FDI) and financial development on tax revenue in upper middle-income countries. Panel data ranging from 2007 to 2017 was used in this study. Econometric estimation methods used include the dynamic generalized methods of moments (GMM) approach, random effects, pooled ordinary least squares (OLS) and fixed effects. Lag of tax revenue, financial development, FDI, economic growth, urbanization, human capital development, population growth and the interaction between FDI and financial development to a greater extent were found to have a significant positive impact on tax revenue. Exchange rate and trade openness had a deleterious effect on tax revenue. Upper middle-income countries are therefore urged to develop and implement policies aimed at increasing FDI inflows, urbanization, economic growth, population growth, human capital development and financial development in order to enhance tax revenue generation and collection. Future empirical research should investigate the minimum threshold levels of these explanatory variables of tax revenue that must be attained in order to trigger significant tax revenue collection.
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