Effects of taxation on economic growth developing countries in Southeast Asia

Abstract

This article aims to study the impact of taxes on economic growth in developing countries in the period 2000-2019. The analysis focuses on differences between countries in tax structure, disaggregating the impact of different revenue sources on economic growth across countries. The particulae emphasis is placed on the impact of fiscal policy through tax instruments on economic growth in developing countries. The relationship is investigated by using the panel data regression analysis of 5 developing countries: Malaysia, Thailand, Vietnam, Philippines, Cambodia. The research also applies POOL, FEM, REM, FGLS models. The results of the study show that increasing tax revenue has a negative impact on economic growth in developing countries. Tax-based fiscal policies are policy tools to overcome fiscal deficits in developing countries. Tax-based fiscal policies are policy tools to overcome fiscal deficits in developing countries. However, fiscal revenues are used to finance unnecessary expenditures, which may be caused by the political system or by inefficient redistributive policies. Tax effect is not reflected in GDP growth rate. Thus, tax revenue can be a viable source of deficit correction but will reduce economic growth. On that basis, the study has proposed a number of policy implications in the administration of tax policy in Vietnam.