IDEAS home Printed from https://ideas.repec.org/a/jfr/ijfr11/v11y2020i2p146-153.html
   My bibliography  Save this article

Direct Versus Indirect Taxes: Impact on Economic Growth and Total Tax Revenue

Author

Listed:
  • Taufik Abd Hakim

Abstract

This study investigates the effects and consequences of both direct and indirect taxes on economic growth and total tax revenue in a panel of 51 countries over the period 1992 ¨C 2016. The data were estimated using the dynamic panel generalized method of moments (GMM) estimation. The results indicate that direct taxes are significant and negatively correlated with the economic growth, while indirect taxes seem to have a positive but insignificant impact on the dependent variable. Additionally, this study also found a significant and positive contribution of direct taxes on the total tax revenue compared to indirect taxes. The conclusion is that tax structure based on direct taxes such as taxes on income, profit and capital gains is harmful to the economic growth, yet more efficient in terms of collecting the tax revenue in a country.

Suggested Citation

  • Taufik Abd Hakim, 2020. "Direct Versus Indirect Taxes: Impact on Economic Growth and Total Tax Revenue," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 146-153, April.
    • Handle: RePEc:jfr:ijfr11:v:11:y:2020:i:2:p:146-153
    DOI: 10.5430/ijfr.v11n2p146
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/16112/10800
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/16112
    Download Restriction: no
    File URL: https://libkey.io/10.5430/ijfr.v11n2p146?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Tosun Mehmet S, 2005. "The Tax Structure and Trade Liberalization of the Middle East and North Africa Region," Review of Middle East Economics and Finance, De Gruyter, vol. 3(1), pages 20-37, April.
    2. Mr. Santiago Acosta Ormaechea, 2012. "Tax Composition and Growth: A Broad Cross-Country Perspective," IMF Working Papers 2012/257, International Monetary Fund.
    3. Mura Petru-Ovidiu, 2015. "Tax Composition And Economic Growth. A Panel-Model Approach For Eastern Europe," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 89-101, February.
    4. Stoyan Tanchev, 2016. "The Role of The Proportional Income Tax on Economic Growth of Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 66-77.
    5. Doris Prammer, 2011. "Quality of taxation and the crisis: Tax shifts from a growth perspective," Taxation Papers 29, Directorate General Taxation and Customs Union, European Commission.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
    8. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    9. Cyrille Schwellnus & Jens Matthias Arnold, 2008. "Do Corporate Taxes Reduce Productivity and Investment at the Firm Level?: Cross-Country Evidence from the Amadeus Dataset," OECD Economics Department Working Papers 641, OECD Publishing.
    10. Jens Matthias Arnold, 2008. "Do Tax Structures Affect Aggregate Economic Growth?: Empirical Evidence from a Panel of OECD Countries," OECD Economics Department Working Papers 643, OECD Publishing.
    11. Bowsher, Clive G., 2002. "On testing overidentifying restrictions in dynamic panel data models," Economics Letters, Elsevier, vol. 77(2), pages 211-220, October.
    12. Lee, Young & Gordon, Roger H., 2005. "Tax structure and economic growth," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1027-1043, June.
    13. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    14. Laura Vartia, 2008. "How do Taxes Affect Investment and Productivity?: An Industry-Level Analysis of OECD Countries," OECD Economics Department Working Papers 656, OECD Publishing.
    15. Åsa Johansson & Chistopher Heady & Jens Matthias Arnold & Bert Brys & Laura Vartia, 2008. "Taxation and Economic Growth," OECD Economics Department Working Papers 620, OECD Publishing.
    16. Dixit, Avinash K, 1970. "On the Optimum Structure of Commodity Taxes," American Economic Review, American Economic Association, vol. 60(3), pages 295-301, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrei Ionut Husman, 2020. "Taxation And Economic Development In The Former Communist Bloc. A Panel Data Approach," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 5(2), pages 83-91, September.
    2. Emmanuel John Kaka & Abdullahi Bala Ado, 2020. "An investigation of the link between indirect tax, oil receipt, debt on foreign reserves in Nigeria," Journal of Contemporary Accounting, Master in Accounting Program, Faculty of Business & Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia, vol. 2(3), pages 119-128, August.
    3. Omodero Cordelia Onyinyechi & Ajetumobi Opeyemi, 2022. "Direct Taxes and Agricultural Finance," Folia Oeconomica Stetinensia, Sciendo, vol. 22(2), pages 180-192, December.
    4. Cordelia O. Omodero, 2022. "Assessment of the Impact of Direct Taxes on Public Investment in Agriculture in Nigeria," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 21(1), pages 6-20.
    5. Mamon Adam Maarof & Dildar Haydar Ahmed & Ahmed Samour, 2023. "Fiscal Policy, Oil Price, Foreign Direct Investment, and Renewable Energy—A Path to Sustainable Development in South Africa," Sustainability, MDPI, vol. 15(12), pages 1-16, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Desislava Stoilova, 2017. "Tax structure and economic growth: Evidence from the European Union," Contaduría y Administración, Accounting and Management, vol. 62(3), pages 1041-1057, Julio-Sep.
    2. Dima Bogdan & Dima Ştefana Maria, 2017. "Does Corporate Tax Burden Affect Growth? Evidences from OECD Countries," Journal of Heterodox Economics, Sciendo, vol. 4(2), pages 51-80, December.
    3. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    4. Dackehag, Margareta & Hansson, Åsa, 2015. "Taxation of Dividend Income and Economic Growth: The Case of Europe," Working Paper Series 1081, Research Institute of Industrial Economics.
    5. Canavire-Bacarreza, Gustavo & Martínez-Vázquez, Jorge & Vulovic, Violeta, 2013. "Taxation and Economic Growth in Latin America," IDB Publications (Working Papers) 4583, Inter-American Development Bank.
    6. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.
    7. Afonso, António & Huart, Florence & Tovar Jalles, João & Stanek, Piotr, 2022. "Twin deficits revisited: A role for fiscal institutions?," Journal of International Money and Finance, Elsevier, vol. 121(C).
    8. Juergen Bitzer & Erkan Goeren, 2018. "Foreign Aid and Subnational Development: A Grid Cell Analysis," Working Papers V-407-18, University of Oldenburg, Department of Economics, revised Mar 2018.
    9. Sabien Dobbelaere & Jacques Mairesse, 2010. "Comparing Micro-evidence on Rent Sharing from Three Different Approaches," NBER Working Papers 16220, National Bureau of Economic Research, Inc.
    10. W.N.W Azman‐Saini & Peter Smith, 2011. "Finance And Growth: New Evidence On The Role Of Insurance," South African Journal of Economics, Economic Society of South Africa, vol. 79(2), pages 111-127, June.
    11. Maurice J.G. Bun & Sarafidis, V., 2013. "Dynamic Panel Data Models," UvA-Econometrics Working Papers 13-01, Universiteit van Amsterdam, Dept. of Econometrics.
    12. Dobbelaere, Sabien & Kiyota, Kozo & Mairesse, Jacques, 2015. "Product and labor market imperfections and scale economies: Micro-evidence on France, Japan and the Netherlands," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 290-322.
    13. Sauquet, Alexandre & Lecocq, Franck & Delacote, Philippe & Caurla, Sylvain & Barkaoui, Ahmed & Garcia, Serge, 2011. "Estimating Armington elasticities for sawnwood and application to the French Forest Sector Model," Resource and Energy Economics, Elsevier, vol. 33(4), pages 771-781.
    14. Mi Lin & Yum K. Kwan, 2011. "Sectoral Location of FDI in China," The World Economy, Wiley Blackwell, vol. 34, pages 1181-1198, July.
    15. Cabral, René & García-Díaz, Rocío & Mollick, André Varella, 2016. "Does globalization affect top income inequality?," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 916-940.
    16. Sèna Kimm Gnangnon, 2022. "Financial development and tax revenue in developing countries: investigating the international trade channel," SN Business & Economics, Springer, vol. 2(1), pages 1-26, January.
    17. Andrea Filippetti & Agnese Sacchi, 2016. "Decentralization and economic growth reconsidered: The role of regional authority," Environment and Planning C, , vol. 34(8), pages 1793-1824, December.
    18. Sèna Kimm Gnangnon, 2023. "Do unilateral trade preferences help reduce poverty in beneficiary countries?," International Journal of Economic Policy Studies, Springer, vol. 17(1), pages 249-288, February.
    19. Gründler, Klaus & Köllner, Sebastian, 2017. "Determinants of governmental redistribution: Income distribution, development levels, and the role of perceptions," Journal of Comparative Economics, Elsevier, vol. 45(4), pages 930-962.
    20. Gnangnon, Sèna Kimm, 2021. "Effect of the Utilization of Non-Reciprocal Trade Preferences offered by the QUAD on Economic Growth in Beneficiary Countries," EconStor Preprints 242848, ZBW - Leibniz Information Centre for Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:ijfr11:v:11:y:2020:i:2:p:146-153. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://ijfr.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.