General Sales Tax and Economic Growth in Small Open Developing Countries: Evidence from Jordan

Abstract

This paper examines the long and short-term empirical relationship between general sales tax(1) and economic growth between 1980-2018 in Jordan. Standardized tests were utilized, specifically Aug-mented Dickey-Fuller and Phillip-Peron methods. From the results, it can be ascertained that the variables are integrated at different degrees and are less than two. As such, we utilized the “Auto-Regressive Distributed Lag (ARDL)†approach for co-integration to determine the relationship between variables over both short and long term periods. Its results indicated one co-integrated relation between sales tax and economic growth. Moreover, a significantly positive effect was observed on economic growth in the short run, but in contrast, long term outcomes showed a negative relationship between the variables. As such, this study concludes that an amendment is needed in the tax system to make it more beneficial for Jordanian economic growth.