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Impact of direct and indirect taxes on economic development: A comparison between developed and developing countries

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  • Taufik Abd Hakim
  • Abdul Aziz Karia
  • Jasmine David
  • Rainah Ginsad
  • Norziana Lokman
  • Salwa Zolkafli

Abstract

Taxes have extraordinary roles in any country’s economic development and policymaking. This study extends prior studies by investigating the impact of direct and indirect taxes on the economic development of 47 developed and 90 developing countries. All data about the variables involved in the study are accessed from the World Bank, covering from 2000 to 2020. Three equation models are developed to examine the impacts of tax structures on economic growth, which are gross domestic product per capita (GDPPC), foreign direct investment (FDI), and unemployment (UE). The study employed fixed effects (FE) and random effects (RE) of Generalized Least Square regression in testing the relationship between taxes structure (direct and indirect) and economic development (GDPPC, FDI, and UE). In addition, the cross-sectional dependence (CD) test is used to identify the presence of spatial dependence for FE and RE estimators. Overall, direct and indirect taxes have a significant negative relationship with economic development based on the GDPPC of developing countries. These results indicated that the tax structure in developing countries does not enhance the countries’ economic growth. By contrast, for developed countries, a significant positive relationship exists between direct taxes and economic development. Economics and Development; Economics; Public Finance

Suggested Citation

  • Taufik Abd Hakim & Abdul Aziz Karia & Jasmine David & Rainah Ginsad & Norziana Lokman & Salwa Zolkafli, 2022. "Impact of direct and indirect taxes on economic development: A comparison between developed and developing countries," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2141423-214, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2141423
    DOI: 10.1080/23322039.2022.2141423
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    Cited by:

    1. Zhang, Xiekui & Huang, Yihan & Fenglan Wei,, 2024. "The incentive effects of the macro tax burden on economic growth: A negative or positive incentive effect? Analysis based on panel data," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 128-147.
    2. Henry Onoriode & Uche Collins Nwogwugwu & Chris Kalu & Maria Chinecherem Uzonwanne, 2024. "Effect of Tax Revenue on Investment in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(3), pages 2501-2520, March.
    3. Narciz Balasoiu & Iulian Chifu & Marian Oancea, 2023. "Impact of Direct Taxation on Economic Growth: Empirical Evidence Based on Panel Data Regression Analysis at the Level of Eu Countries," Sustainability, MDPI, vol. 15(9), pages 1-32, April.

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