Examining the impact of tax policies and institutional reforms on economic growth: A systematic approach on Djibouti
Abstract views: 96 / PDF downloads: 145
Keywords:Tourism Income, Economic Growth, Causality
Institutions are rules, guidelines, and regulations that regulate how agents participate in economic transactions, such as the purchasing and selling of commodities and services, as well as the usage of assets. They impact the objectives of major economic players in society, influencing expenditures in both tangible and intellectual capital, technology, and commodity. It also entails proper amounts of tax collections, which are critical for long prosperity, but many nations’ tax systems persist in their poorest connection in the encouragement of progress and state building. Hereby, the present study examined the role of tax policies and institutional reforms in promoting the economic growth of Djibouti during the period 2000 to 2021. The paper employed a Vector Error Correction model (VECM) and a Granger causality test to capture the long-run and short-run dynamic connection between the variables. As well as determining the direction of these associations. The findings presented that during the short-run tax policies and institutional reforms have an insignificant influence on economic growth. Whereas, the long-run outcome revealed that business taxes, government effectiveness, and institutional quality have a positive impact on economic growth. Further, the Granger causality test illustrated one-way causality between GDP, government effectiveness, and regulatory quality. The findings contribute by providing evidence to the region and for the country itself on the way of managing taxation and implementing rigorous institutional regulation in hope of promoting economic growth.
AFONSO, J. R., ARAÚJO, E. C., & FAJARDO, B. G. (2016). The role of fiscal and monetary policies in the Brazilian economy: Understanding recent institutional reforms and economic changes. The Quarterly Review of Economics and Finance, 62, 41-55.
AHMAD, S., SIAL, H. M., & AHMAD, N. (2018). Indirect taxes and economic growth: An empirical analysis of Pakistan. Pakistan Journal of Applied Economics, 28(1), 65-81.
AKWE, J. A. (2014). Impact of non-oil tax revenue on economic growth: The Nigerian perspective. International Journal of Finance and Accounting, 3(5): 303-309.
ANGELL, O. H. (2011). Challenges to Equality in the Welfare State: The Norwegian Case of Drammen. Int. Beliefs, 3, 41–50.
ANGELOPOULOS, K., ECONOMIDES, G., & KAMMAS, P. (2007). Tax-spending policies and economic growth: theoretical predictions and evidence from the OECD. European Journal of Political Economy, 23(4), 885- 902.
ARNOLD, J. M., BRYS, B., HEADY, C., JOHANSSON, Å., SCHWELLNUS, C., & VARTIA, L. (2011). Tax policy for economic recovery and growth. The Economic Journal, 121(550), F59-F80.
BAIARDI, D., PROFETA, P., PUGLISI, R., & SCABROSETTI, S. (2019). Tax policy and economic growth: does it really matter? International tax and public finance, 26(2), 282-316.
BARTLETT, W., ČUČKOVIĆ, N., & JURLIN, K. (2017). A comparative perspective on institutional quality in countries at different stages of European integration. Tijdschrift voor economische en sociale geografie, 108(1), 92-108.
BUTERIN, V., ŠKARE, M., & BUTERIN, D. (2017). A macroeconomic model of institutional reforms’ influence on economic growth of the new EU members and the Republic of Croatia. Economic research-Ekonomska istraživanja, 30(1), 1572-1593.
CHONG, A., & CALDERON, C. (2000). Causality and feedback between institutional measures and economic growth. Economics & Politics, 12(1), 69-81.
COCCIA, M. (2018). Optimization in R&D intensity and tax on corporate profits for supporting labor productivity of nations. The Journal of Technology Transfer, 43(3), 792-814.
CORRADO, G., & ROSSETTI, F. (2018). Public corruption: A study across regions in Italy. Journal of Policy Modeling, 40(6), 1126-1139.
DICKEY, D. A., & FULLER, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
DIRIR, S. A. The Association Between the Labor Force and Socio-Economic forces in Sub-Saharan Africa: Evidence from a VECM approach. Journal of Politics Economy and Management, 5(2), 165-179.
DRAMANE, A. (2022). The Nexus between Military Spending, Tax Revenues and Economic Growth in the G5 Sahel Countries. African Journal of Economic Review, 10(2), 56-72.
GEMMELL, N., KNELLER, R., & SANZ, I. (2014). The growth effects of tax rates in the OECD. Canadian Journal of Economics/Revue canadienne d’économique, 47(4), 1217-1255.
GRANGER, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: journal of the Econometric Society, 424-438
GUJARATI, D. N. (2011). Econometrics by example (Vol. 1). New York: Palgrave Macmillan.
HAIDAR, J. I. (2012). The impact of business regulatory reforms on economic growth. Journal of the Japanese and international economies, 26(3), 285-307.
HANLON, M., MAYDEW, E. L., & THORNOCK, J. R. (2015). Taking the long way home: US tax evasion and offshore investments in US equity and debt markets. The Journal of Finance, 70(1), 257-287.
HASSAN, M., OUESLATI, W., & ROUSSELIÈRE, D. (2020). Environmental taxes, reforms and economic growth: An empirical analysis of panel data. Economic Systems, 44(3), 100806.
HOPE, D., & LIMBERG, J. (2022). The economic consequences of major tax cuts for the rich. Socio-Economic Review.
HOLMES, E. E., SCHEUERELL, M. D., & WARD, E. J. (2020). Applied time series analysis for fisheries and environmental data. Seattle: Northwest Fisheries Science Center.
HUSSAIN, S. M. (2015). The contractionary effects of tax shocks on productivity: An empirical and theoretical analysis. Journal of Macroeconomics, 43, 93-107.
KANEVA, T., CHUGUNOV, I., PASICHNYI, M., ANDRIY, N., & HUSAREVYCH, N. (2022). Tax Policy for Economic Recovery and Sustainable Development After COVID-19. Pasichnyi et al./Problemy Ekorozwoju/ Problems of Sustainable Development, 102-109.
KASADHA, J., ALLI, A. A., BASUUTA, A. K., & MPOZA, A. (2020). Social media taxation and its impacton Africa’s economic growth. Journal of Public Affairs, 20(2), e2004.
KATE, F. T., & MILIONIS, P. (2019). Is capital taxation always harmful for economic growth? International Tax and Public Finance, 26(4), 758-805.
KHLIF, H., GUIDARA, A., & HUSSAINEY, K. (2016). Sustainability level, corruption and tax evasion: a cross-country analysis. Journal of Financial Crime, 23(2), 328-348.
LANGENMAYR, D., HAUFLER, A., & BAUER, C. J. (2015). Should tax policy favor high-or low-productivity firms? European Economic Review, 73, 18-34.
LI, H., XIONG, Z., & XIE, Y. (2018). Resource tax reform and economic structure transition of resource-based economies. Resources. Conservation and Recycling, 136, 389-398.
LIN, B., & JIA, Z. (2019). Tax rate, government revenue and economic performance: A perspective of Laffer curve. China Economic Review, 56, 101307.
LIU, L., HUANG, C. Z., HUANG, G., BAETZ, B., & PITTENDRIGH, S. M. (2018). How a carbon tax will affect an emission-intensive economy: A case study of the Province of Saskatchewan, Canada. Energy, , 159, 817-826.
LÓPEZ-TAMAYO, J., RAMOS, R., & SURIÑACH I CARALT, J. (2018). Economic performance, social progress and institutional reform in European neighbouring countries. The Annals of Regional Science, 60(3), 613-636.
MASHKOOR, M., S. YAHYA AND S.A. ALI. (2010). Tax revenue and economic growth: An empirical analysis for Pakistan. World Applied Science Journal, 10(11): 1283-1289.
MASUCH, K., MOSHAMMER, E., & PIERLUIGI, B. (2017). Institutions, public debt and growth in Europe. Public sector economics, , 41(2), 159-205.
NAKADA, M. (2004). Does environmental policy necessarily discourage growth? Journal of Economics, 81(3), 249-275.
NEDIĆ, V., DESPOTOVIĆ, D., CVETANOVIĆ, S., DJUKIĆ, T., & PETROVIĆ, D. (2020). Institutional reforms for economic growth in the Western Balkan countries. Journal of Policy Modeling , 42(5), 933-952.
OJONG, C. M., ANTHONY, O., & ARIKPO, O. F. (2016). The impact of tax revenue on economic growth: Evidence from Nigeria. IOSR Journal of economics and finance, 7(1), 32-38.
OKAFOR, R. G. (2016). Tax revenue generation and Nigerian economic development. European journal of business and management, 4(19), 49-56.
ONAOLAPO, A. A., AWOREMI, R. J., & AJALA, O. A. (2013). Assessment of value added tax and its effects on revenue generation in Nigeria. International Journal of Business and Social Science, 4(1), 220-225.
ORTMANN, S., & ORTMANN, S. (2017 p:93). The Vietnamese government and institutional reforms. Environmental governance in Vietnam: Institutional reforms and failures.
OSIPOV, V. S., SKRYL, T. V., BLINOVA, E. A., & KOSOV, M. E. (2017). Dysfunctions of Public Administration System: Analysis of Institutional Reforms. International Review of Management and Marketing, 7(2), 123-129.
PAPAIOANNOU, E., & SIOUROUNIS, G. (2008). Economic and social factors driving the third wave of democratization. Journal of comparative Economics, 36(3), 65-387.
SIMIONESCU, M., & ALBU, L. L. (2016). The impact of standard value added tax on economic growth in CEE-5 countries: econometric analysis and simulations. Technological and Economic Development of Economy, 22(6), 850-866.
STOILOVA, D. (2017). Tax structure and economic growth: Evidence from the European Union. Contaduría y administración, 62(3), 1041-1057.
UBERTI, L. J. (2016). Can institutional reforms reduce corruption? Economic theory and patron–client politics in developing countries. Development and Change, 47(2), 317-345.
VATAVU, S., LOBONT, O. R., STEFEA, P., & BRINDESCU-OLARIU, D. (2019). How taxes relate to potential welfare gain and appreciable economic growth. Sustainability, 11(15), 4094.
VEGH, C. A., & VULETIN, G. (2015). How is tax policy conducted over the business cycle? American Economic Journal: Economic Policy, 7(3), 327-70.
YAZBECK, A. S., SAVEDOFF, W. D., HSIAO, W. C., KUTZIN, J., SOUCAT, A., TANDON, A., ... & CHIMAN YIP, W. (2020). The Case Against Labor-Tax-Financed Social Health Insurance For Low-And Low-Middle-Income Countries: A summary of recent research into labor-tax financing of social health insurance in low-and low-middle-income countries. Health Affairs, 39(5), 892-897.
ZHAO, J., MADNI, G. R., ANWAR, M. A., & ZAHRA, S. M. (2021). Institutional Reforms and Their Impact on Economic Growth and Investment in Developing Countries. Sustainability, 13(9), 4941.
How to Cite
Copyright (c) 2023 JOURNAL OF LIFE ECONOMICS
This work is licensed under a Creative Commons Attribution 4.0 International License.
When the article is accepted for publication in the Journal of Life Economics, authors transfer all copyright in the article to the Holistence Publications.The authors reserve all proprietary right other than copyright, such as patent rights.
Everyone who is listed as an author in this article should have made a substantial, direct, intellectual contribution to the work and should take public responsibility for it.
This paper contains works that have not previously published or not under consideration for publication in other journals.