Are some taxes better for growth in Pakistan? A time series analysis
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 7 August 2018
Issue publication date: 25 September 2018
Abstract
Purpose
The purpose of this paper is to analyze the impact of taxes on economic growth in the long run as well as in the short run.
Design/methodology/approach
The study uses simple time series model, where real GDP is dependent variable and different forms of taxes are explanatory variables under ARDL framework from 1976 to 2014 at annual frequency for Pakistan.
Findings
Direct taxes have positive relation with economic growth in the long run. Sales tax, tax on international trade (tariffs) and other indirect taxes have positive impact on economic growth of Pakistan in the long run as well as in the short run. However, sales tax and other indirect taxes impact negatively on economic growth in the short run after one year because people realize decline in their real income.
Practical implications
Government should increase direct taxes by increasing tax base. Indirect taxes usually indicate negative impact after one and two years; therefore, government should decrease its reliance on indirect taxes. Government should promote tax awareness among the people which increase the tax morale of people and increase the tax base.
Originality/value
Taxes are disaggregated into direct and indirect taxes, while indirect taxes have been further disaggregated into excise duty, sales tax, surcharges, tax on international trade and other indirect taxes. This study provides useful insight for policy makers in designing taxes and their effect on growth.
Keywords
Acknowledgements
The authors of this paper have not made their research data set openly available. Any enquiries regarding the data set can be directed to the corresponding author.
Citation
Munir, K. and Sultan, M. (2018), "Are some taxes better for growth in Pakistan? A time series analysis", International Journal of Social Economics, Vol. 45 No. 10, pp. 1439-1452. https://doi.org/10.1108/IJSE-09-2017-0416
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited