DETERMINANTS OF TAX REVENUE IN EMERGING COUNTRIES

Abstract

Issuing tax is important for countries to increase the ability of the government to spend on citizens. Knowing and understanding the relationship between these determinants and tax revenue make all tax policymaker have a clear image about when to issue tax and with which percentage. This study focused on explaining the effect of the macroeconomic variables, namely, GDP growth, agriculture, employment, manufacturing and trade on tax revenue in seven emerging countries by adopting the ordinary least square (OLS) method. The outcome of the analysis deduced that each of these countries had different tax revenue determinants. India is positively affected by GDP growth; Pakistan is positively impacted by employment growth; Brazil is positively affected by trade growth; Mexico is positively impacted by employment growth but negatively impacted by trade growth; and Malaysia is negatively affected by agriculture growth.  China and Turkey had four same significant determinant factors (agricultural growth, employment growth, manufacturing growth and trade growth). China is positively influenced by manufacturing growth but negatively affected by the other three determinants. On the other hand, the determinant for Turkey was negatively affected by manufacturing growth while the rest were positively. In conclusion, these determinants can influence tax revenue positively or negatively and each country has a specific sector from which they generate money, depending on these sectors governments decide how much tax they should issue.