Corporation income taxation impact on unemployment rate: VAR model approach

Abstract

Corporate income tax is an important tax for the state to regulate budget revenue and is an important tool for encouraging and promoting production and business development to create jobs. This study investigated the relationship and impact between corporate income tax and unemployment in Vietnam, China, and South Africa to investigate whether higher corporate income tax contributes to higher unemployment. Data on corporate taxation and unemployment rates from 2000 to 2020 are collected, and the VAR model, cointegration, and impulse response tests were applied to estimate the impact of taxation on the unemployment rates of developed, developing, and underdeveloped countries. The corporate tax and unemployment rates have a close relationship: South Africa, China, and Vietnam correspond to 82%, 54.3%, and 47%, and the majority of the model’s variables for the three countries are non-stationary at lag I(0), with the exception of the variable for China’s unemployment rate, which demonstrates that the probabilities of the model’s variables for Vietnam and South Africa are greater than the alpha of 0.05 and are, respectively, 0.6193, 0.7299, 0.3421, and 0.6347. Thus, variables have a lag after year, in this case, assuming that other factors remain unchanged if the corporate tax rate decreases by 1%, South Africa’s unemployment rate decreases by 10%. Similarly, Vietnam’s unemployment rate decreased by 1.1%, but China’s unemployment increased by 2.9%. The suggestion is that the government adjusts tax laws to better match micromanagement and regulate and balance the relationship between taxes and unemployment.