Impact of Technology on Tax Revenue in Transitional Markets. How Relevant is Financial Development?
Keywords:
Technology, Tax Revenue, Panel Data, Financial DevelopmentAbstract
Objectives: This study examined the role of technology in tax revenue collection in transitional markets. Using the same set of data, it also explored if financial development is a channel through which technology enhanced tax revenue in transitional markets. Prior Work: Both theoretical and empirical literature review shows that there is no consensus yet on the technology-financial development-tax revenue nexus and several gaps still exist. The empirical research’s findings are mixed, divergent and far from reaching a consensus. Approach: Panel methods such as fixed effects, fully modified ordinary least squares (FMOLS) and the dynamic generalized methods of moments (GMM) were used. The study used panel data spanning from 2009 to 2023. Results: Using individuals using the internet (% of population) as a proxy of technology, FMOLS and dynamic GMM shows that tax revenue was significantly enhanced by technology. Employing fixed telephone subscriptions (per 100 people) as a measure of technology, fixed effects and FMOLS noted that technology’s enhancing influence on tax revenue was significant. FMOLS and fixed effects (model 2) also shows that financial development had a significant positive effect on tax revenue. All the three panel methods indicate that the complementarity between technology and financial development significantly improved tax revenue in transitional markets. Implications: Transitional markets are urged to implement technology and financial development enhancing policies to significantly improve and boost tax revenue collection. Value: Study reveals that financial development is important in helping technology’s influence on tax revenue to be positive and significant in transitional marketss.
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