Taxes and Economic Growth: An Empirical Analysis of Pakistan

Abstract

The link between overall government income and economic growth in Pakistan is determined numerically in this study. Time series (2000-2020) is utilized for calculation. The study's major goal is to find whether there is a long-term or short-term link between overall tax receipts and economic growth. For co-integration, the auto regressive distributed lag model (ARDL) model bounds testing technique is used. The long run and short run association is predicted using the ARDL testing technique for co-integration. In the long run, total government revenues have bad considerable impact on economical growth. The growth would be -1.75 percent lower unless income taxes were raised by 1.5% percent. The total tax ECM coefficient reveals In a year though time, the rate of growth. If we want to promote economic development, we must reduce indirect taxes (Sales tax on goods is currently 17%) whilst boosting direct taxes (income taxes), according to research findings. Pakistan Tax Revenue was reported at 23.763 USD bn in Mar 2019. This records an increase from the previous number of 15.283 USD bn for Dec 2018. Pakistan Tax Revenue data is updated quarterly, averaging 10.310 USD bn from Sep 2000 to Mar 2020, with 83 observations. Direct taxes currently account for just 33% of total tax receipts, while indirect taxes provide for 63%, a condition that needs be reversed if economic growth is to be increased. Taxation and its ramifications are a vital tool for governments in most, if not all, nations to manage public finances. We choose to look at how residents feel about their nations and how much it effects the country's wealth. To evaluate the impact of the tax on citizens, the GDP is often used as a reference for statistical data. Our attention was drawn to a variety of Asian countries in both good and terrible ways, with Pakistan receiving the most attention. The economies in question have been in a comparable situation in the past or present, and our goal is to examine the different elements of those consequences to see just how they influence Pakistan's economy as a result of any variables. As stated in the conclusion and policy recommendation, further might be done to enhance them. The information gathering spans the years 2000 through 2020.