Generation of Tax Revenues and Economic Development: A Panel-Analysis for Emerging Economies in Asia

Abstract

Abstract Particularly in an emerging or developing economy context, generating sufficient tax revenues is essential for the provision and upkeep of well-needed public infrastructure/public capital that supports the development process. However, tax policy can also cause distortionary and negative effects to economic activity and growth, especially if excessive taxation is imposed. The aim of this paper is to examine the role of tax revenues and estimate its overall net impact on economic growth in emerging economies in Asia. The dataset covers emerging economies from South, Southeast, and East Asia during 1998-2015. The results show that tax revenues have an overall positive net impact on the growth rate of real GDP per capita, suggesting the positive effects associated with taxation outweigh the negative and distortionary effects of taxation. Thus, evidence is found that the collection of adequate amounts of tax revenues (with which public investments were financed) contributed significantly to economic development.