Nepal's Tax Revenue: Analyzing the Effect on GDP

Abstract

Nepal, like most developing nations, must overcome several economic obstacles in order to pursue sustainable economic growth and development through taxation. The issue over whether taxes are an effective instrument for fostering economic development and growth in the literature is still open since different studies have shown conflicting results on the impact of taxes on economic growth. The goal of the study is to determine the relationship between Nepal's economic growth and the tax revenue sources of the government, while also measuring the short and long run effects of changes in these revenue sources on economic growth. To forecast the change in economic growth due to changes in tax revenue sources, Autoregressive Distributed Lag (ARDL) is performed on time series secondary data for the period from 1974 to 2021. According to the findings, Non-Tax Revenue (NTR) have positive significant relationship, while Tax Revenue (TR) has a positive but insignificant relationship with Nepal's economic growth over the long run. Variables were found to be stationary at I (0) and I (1) using the Augmented Dickey-Fuller Test. According to the results of the bound test, Non-tax revenue is the cointegrated factor that affect Nepal's economic growth. The factor that has no impact on Nepal's economic growth is tax revenue. Non- tax revenue significantly affects Nepal's economic growth over the long run. As non-tax revenue has a positive impact on Nepal's economic growth and tax revenue have a negative impact on it, it is advised that policymakers concentrate on increasing the revenue collection from non-tax revenue sources in order to prosper and accelerate economic growth. In terms of economic growth, the study concludes that Nepal has experienced an increase over time. The study does find that the economic growth has been moderate. Key words: Tax Revenue, Non-Tax Revenue, ARDL, Gross Domestic Product, Nepal