Tax cuts can also slow longrun economic growth by increasing budget deficits. This will discourage production of these commodities and the scarce resources will now be diverted from their production to the other products which are useful for economic growth. Only a small fraction of firms generates nontrivial effects on economic growth through the development of new products, new technologies, or new internal forms of organization. This work evaluates the effect of tax avoidance and tax evasion on economic growth and development in nigeria 20062016. The results indicate a zero effect of taxation on longterm growth. Yearly data for south africa for the period 1981 2016 was used to develop the autoregressive distribution lag ardl approach. Taxes thus affect an economy in various ways, although the effects of taxes may not necessarily be good. The correlation between corporate income taxation and economic growth is more robust. It aimed to give a detailed examination of the effect of tax avoidance on the economic growth and development in nigeria. This paper investigates the impact of taxation on economic growth in south africa.
An essay on the effects of taxation on the corporate financial policy george contos, internal revenue service. It is shown that the effects of taxation on growth depend crucially on whether. Jorgenson, harvard university and kunyoung yun, yonsei university april 2, 2012 acknowledgements. The positive and negative effects of taxation will be mutually offsetting and only the net effect which may be very small will be observed. This paper examines how changes to the individual income tax affect longterm economic growth. Findings from this study show that hightax countries have been more successful in achieving their social objectives than lowtax countries.
By nature, taxation may be proportional, progressive or regressive. The impact of property taxes was statistically insignificant. Value added tax has no significant longrun effect on economic growth in nigeria. We consider the impact of a major tax reform on the longterm growth rates of the u. Tax to gdp ratio for growth model, sales tax for consumption model and income tax for investment model are used. The aim of this paper is to evaluate the impact of individual types of taxes on the economic growth by utilizing regression analysis on the oecd countries for the period of 20002011.
Pdf the effects of tax revenue on economic growth in. The impact of taxation on economic growth in south africa. The idea that taxes affect economic growth has become politically contentious. Through its effect on the return to investment or the expected profitability of research and development, taxation can affect what choices are made and, ultimately. These are labor supply, capital investment, technological progress, and human capital.
The different channels through which these taxes affect economic growth are dis cussed. In trying to judge to what degree the tax system may. Committee on taxation, includes an overview of economic growth and the impact that taxes may have on economic growth. The purpose of the study was therefore to analyze the effect of custom and excise duties on economic growth in kenya for the period 1973 to 2010, this study is motivated by two developments. Part i of this document discusses four principal determinants of economic growth that tax policy may be able to influence. But as tax rates rise, their negative impact on growth rises dramatically. The importance of smes as a mechanism of economic growth and development is often ignored. It may, in the ultimate analysis, produce some beneficial effects on production. Some researchers estimated the effect of tax revenue on the economic development of nigeria using gross domestic product gdp. This initial confusion has led to almost 100 years of legislative debates over capital gains. Evaluating the impact of value added tax on the economic. A lot of literature exists on tax revenue and economic growth of nigeria adereti et al. Basebroadening measures can eliminate the effect of tax rate cuts on budget deficits, but at the same time, they reduce the impact on labor supply, saving, and. An insignificant but positive relationship was found to exist between non.
Interestingly, they have done so with no economic penalty. Taxation, imposition of compulsory levies on individuals or entities by governments. Effects of multiple taxation on the performance of small and medium scale business enterprises in benue state ocheni, s. Effects of multiple taxation on the performance of small. In our model, the effects of taxation on growth are highly nonlinear. Pdf the aim of this paper is to evaluate the impact of individual types of taxes on the economic growth by utilizing regression analysis on the oecd. An essay on the effects of taxation on the corporate. Myles abstract the development of endogenous growth theory has opened an avenue through which the effects of taxation on economic growth can be explored. Such significant increases in custom and excise tax revenue raise pertinent questions about the effect they have had upon economic growth. Case study of oecd countries 1 rudolf macek2 abstract. This paper was prepared for the handbook of computable general equilibrium modeling, edited by peter b.
Proponents of tax cuts point to the effects that lower taxes have on incentives to work, to save, and to invest, and argue that. Zeng and zhang 2001 discuss the growth effects of taxes by using of the growth model according howitt 1999, where are innovation the main sources of growth. When the economy is operating near potential, government. The impact of tax policy on economic growth in nigeria.
Value added tax has no significant positive relationship with economic growth in nigeria. Effects of lower capital gains taxes on economic growth. The economic effects of capital gains taxation congressional research service 1 ne provision of the 19 individual income tax that generated a great deal of confusion was the taxation of income from the sale of property i. To examine the relationship between value added tax and revenue generation in nigeria to establish the effects of value added tax on revenue generation in nigeria 1. The aim of this paper is to evaluate the impact of individual types of taxes on the economic growth by utilizing regression analysis on the oecd countries for the period of 2000 2011. Based on the analysis results it is evident that in effort to stimulate economic growth in oecd countries.
Company income tax has significant effect on the gross domestic product of nigeria and customs and excise duties have significant effect on the. All of the articles in this series are forthcoming in a book by oxford university press, coedited by alan auerbach and kent smetters. At this stage, however, there is little agreement about federal reserve board, washington. Economic activity is examined through real gdp, consumption and investment, and for each from the said proxies a different econometric model is developed for analysis. This paper deals with effect of changes in tax burden on economic growth and provides direct empirical evidence in the european union as financial and economic crisis has impacted also on tax systems. A significant negative impact of higher marginal tax rates on economic growth was the result of the research by barry and jules 2008 which underscores the importance of controlling for regressivity, convergence, and regional influences in isolating the effect of taxes on economic growth in the united states. Introduction t he impact of taxation on growth and investment has been hotly debated both in academic and political circles. So we see that a society with some taxation that provides these services will have a much higher level of economic growth than a society with no taxation but no police force or the court system. Though these latter effects are difficult to quantify, they also influence economic growth and should be considered in assessing the effects of proposals to lower taxes on capital gains.
The impact of taxation is integrated into growth models by its impact on the individual growth variables, which are capital accumulation and investment, human. Explicit modelling of the individual decisions that contribute to growth allows the analysis of tax incidence and the prediction of growth effects. I professor of accounting, department of accounting, kogi state university, anyigba, nigeria. This study examines the effect of tax revenue on economic growth in nigeria, utilizing time series data for the period spanning from 1970 to 2011. The impact of taxation is integrated into growth models by its. Economic growth is the growth of an economys output of goods and services which is sometimes reffered to as the gross national product gnp growth. This article is part of a series of taxrelated articles sponsored by the penn wharton budget model and the robert d. Taxation of corporations and their impact on economic. Working papers from the economics department of the oecd that cover the full range of the departments work including the economic situation, policy analysis and projections. This paper analyzes the effects of taxes on economic activity in pakistan. The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capi tal. This article is concerned with taxation in general, its principles, its objectives, and its effects. The positive effects of tax rate cuts on the size of the economy arise because lower tax rates raise the aftertax reward to working, saving, and investing.
Progressive tax rates can reduce inequality as a larger amount of tax will be collected from the high income groups. Effects of income tax changes on economic growth brookings. This is contrary to the findings of ugwunta and ugwuanyi 2015 which adopted an expost facto research design, with a panel data estimation technique. In these studies, researchers used economic development and economic growth interchangeably. Effects of income tax changes on economic growth penn. This does not imply that it is straightforward to infer the effects of taxation from aggregate economic data.
Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well. Economic effects of taxation can be studied under the following headings. Low or moderate tax rates have a very small impact on longrun growth rates. So an increase in taxes can lead to larger economic growth if it is used to pay for one of these services. In this study, we empirically test the impact of taxation on the longterm growth of a sample of 32 countries in subsaharan africa.
Increasing investment and economic growth economic growth depends on two factors. The second is to raise the marginal propensity to save of the community as far above. Role of taxation in financing economic development economics. The general objective of this study is to examine the impacts of value added tax on revenue generation in nigeria. Tax reforms are sometimes touted to have strong macroeconomic growth effects. High taxation on harmful drugs and commodities will reduce their consumption. Modelling growth, taxation and investment incentives 116 tax and growth modelling. The effect of custom and excise duties on economic growth. We study a model in which the effects of taxation on growth are highly nonlinear. Taxes can affect growth through their impacts on factor accumulation and total factor productivity. Nonlinear effects of taxation on growth nir jaimovich and sergio rebelo cqer working paper 2 april 20 abstract. The empirical results confirm that there is a negative relationship between taxes and economic growth in south africa.