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The Optimal Threshold of Tax Revenue for Economic Growth: An Investigation into the ASEAN 5+1 Countries

Author

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  • Nga Phan Thi Hang
  • My-Linh Thi Nguyen
  • Tung Duy Thai
  • Toan Ngoc Bui

Abstract

Purpose: This paper aims to test how tax revenue affects Indonesia, Malaysia, Thailand, Singapore, the Philippines, and Vietnam. Design/Methodology/Approach: The dependent variable is the annual percentage growth rate of gross domestic product (GDP). The independent variable is the government’s total tax revenue to gross domestic product (TAX). The control variable is the total government expenditure to gross domestic product (GOV) with the panel data collected over the period 2008-2017 and analyzed according to the Generalized Method of Moment (GMM). Next, based on the theoretical framework of the nonlinear relationship between tax revenue and economic growth, the researchers conducted the derivation of the quadratic equation based on TAX's variable to determine the extreme point (the optimal threshold of tax revenue). Findings: The research results show that tax revenue has a positive impact on the economic growth in the selected countries, while government expenditure harms these countries' economic growth. Moreover, the optimal threshold of tax revenue found in this study is 15.33%, through which tax revenue harms economic growth. This new finding of this paper will add more empirical evidence to help the ASEAN 5+1 countries plan to develop and adjust tax policies in the coming period to ensure that tax policies have a positive impact on economic growth. Practical Implications: The research results bring practical and meaningful value to the ASEAN-5 countries and Vietnam. Originality/Value: The paper shows that tax revenue has a nonlinear impact on economic growth. Thereby, the researchers determined the optimal threshold of tax revenue of 15.33%.

Suggested Citation

  • Nga Phan Thi Hang & My-Linh Thi Nguyen & Tung Duy Thai & Toan Ngoc Bui, 2020. "The Optimal Threshold of Tax Revenue for Economic Growth: An Investigation into the ASEAN 5+1 Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 422-434.
    • Handle: RePEc:ers:ijebaa:v:viii:y:2020:i:4:p:422-434
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    More about this item

    Keywords

    ASEAN 5+1; economic growth; GMM; optimal threshold; tax revenue.;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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