ESTIMATING THE EFFECT OF TAXATION ON THE ECONOMIC GROWTH OF SIERRA LEONE USING A TIME SERIES ANALYSIS

Abstract

<p>This study delves into the impact of taxation on the economic growth of Sierra Leone, aiming to establish a comprehensive understanding of the intricate relationship between taxation and the country's economic trajectory. Employing time series data spanning from 1995 to 2022, the study utilizes the Auto Regressive Distributed Lag (ARDL) framework for analysis. Unit root analysis reveals that certain variables remain stable at levels, while others achieve stability at their first difference. The bound test cointegration results affirm the presence of cointegration, indicating a long-term relationship between taxation and economic growth in Sierra Leone. The study highlights the overall significance of explanatory variables in explaining Gross Domestic Product (GDP). The coefficient of determination indicates that 77.37 percent of GDP variation is explained by indirect taxes, other taxes, interest rates, and foreign direct investment. Notably, the coefficient of indirect taxes demonstrates a negative and statistically significant influence on short-term economic growth in Sierra Leone. In contrast, interest rates exhibit positive and individually significant effects on short-term economic growth. The findings suggest that indirect taxes in Sierra Leone stimulate consumption but reduce savings. Consequently, policymakers are urged to prioritize enhancing international relations to attract Foreign Direct Investment (FDI) and promote export activities, thereby bolstering export revenue and fostering economic growth.</p><p> </p><p><strong>JEL: </strong>O11, O23, H20, H22, C22, F21, E62</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu/0758/a.php" alt="Hit counter" /></p>