Tax structure and economic growth in India: insights from ARDL model

2020 ◽  
Vol 13 (3) ◽  
pp. 589-605
Author(s):  
Yadawananda Neog ◽  
Achal Kumar Gaur
Keyword(s):  
Economic Growth ◽  
Empirical Literature ◽  
Tax Structure ◽  
Estimation Model ◽  
Data Set ◽  
Ardl Model ◽  
Content Type ◽  
Corporation Tax ◽  
Long Run ◽  
Short Run

Purpose In the academic debate, the tax–growth relationship is always a controversial one. This paper aims to investigate the relationship between tax structure and economic growth in India for the period 1980-2016. After controlling for total tax revenue share to GDP in the estimation model, the authors examine the long-run and short-run relationship between tax structure and growth in India. Design/methodology/approach Auto-regressive distributed lag (ARDL) model has been used in this study. This bound cointegration model has certain advantages to the traditional cointegration model. This study also applies the threshold cointegration test of Hansen and Seo (2002) for examining non-linearity in tax–growth nexus. Findings The analysis shows that income tax share, corporation tax share and excise tax share are harmful to growth in the long-run. While the custom share is enlarging the growth performance. Corporation tax share is also reducing growth in the short-run. Following the Pesaran et al. (2001) approach of ARDL bound testing, the authors find the existence of a long-run relationship between studied variables. However, this study does not find any existence of threshold effect in the tax–growth relationship for India. Practical implications Based on the empirical findings, the author suggests that the prime tax change, which has the potential to impact both long-run growth and short-run economic recovery is the reduction of corporate tax rate with sustainable revenue generation. It will definitely enlarge the foreign direct investment, saving and investment in India. Originality/value This study will be a contribution to the empirical literature by investigating “tax–growth” relationship in the Indian case. To the knowledge, this will be the first study to examine this relationship for India with a recent data set.

The effectiveness of government expenditure on economic growth in Botswana

2019 ◽  
Vol 10 (3) ◽  
pp. 368-384 ◽  
Author(s):  
Kafayat Amusa ◽  
Mutiu Abimbola Oyinlola
Keyword(s):  
Economic Growth ◽  
Government Spending ◽  
Negative Impact ◽  
Positive Impact ◽  
Government Expenditure ◽  
Public Spending ◽  
Empirical Literature ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to examine the relationship between government expenditure and economic growth in Botswana over the period 1985‒2016. The study employed the auto-regressive distributed lag (ARDL) bounds testing approach in investigating the nexus. The study makes the argument that the effectiveness of public spending should be assessed not only against the amount of the expenditure but also by the type of the expenditure. The empirical findings showed that aggregate expenditure has a negative short-run and positive long-run effect on economic growth. When expenditure is disaggregated, both forms of expenditures have a positive short-run effect on economic growth, whereas only a long-run positive impact of recurrent expenditure is observed. The study suggests the need to prioritize scarce resources in productive recurrent and development spending that enables increased productivity. Design/methodology/approach This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis is carried out on both an aggregate and disaggregated level. Government spending is divided into recurrent and development expenditures. Findings This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis hinged on both the aggregate and disaggregated levels. The results of the aggregate analysis suggest that total public expenditure has a negative impact on economic growth in the short run; however, its impact becomes positive over the long run. On disaggregating government spending, the results show that both recurrent and development expenditures have a significant positive short-run impact on growth; however, in the long run, the significant positive impact is only observed for recurrent expenditure. Practical implications The results provide evidence of the diverse effects of government expenditure in the country. In the period under investigation, 73 percent of total government expenditure in Botswana was recurrent in nature, whereas 23 percent was related to development. From the results, it can be observed that although the recurrent expenditure has contributed to increased growth and must be encouraged, it is also pertinent for the Botswana Government to endeavor to place more emphasis on productive development expenditure in order to enhance short- and long-term growth. Further, there is a need to strengthen the growth-enhancing structures and to prioritize the scarce economic resources toward productive spending and ensuring continued proper governance over such expenditures. Originality/value The study provides empirical evidence on the effectiveness of government spending in a small open, resource-reliant middle-income SSA economy and argues that the effectiveness of public spending must be assessed not only against the amount of the expenditure but also on the type or composition of the expenditure. The study contributes to the scant empirical literature on Botswana by employing the ARDL approach to cointegration technique in estimating the long- and short-run impact of government expenditure on economic growth between 1985 and 2016.

Economic growth, inequality and trade in developing countries

2016 ◽  
Vol 15 (3) ◽  
pp. 240-253 ◽  
Author(s):  
Muhammad Tariq Majeed
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Open Economy ◽  
Developing Economies ◽  
Negative Relationship ◽  
Growth Effect ◽  
Data Set ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this study is to analytically explore and empirically test the relationships between economic growth, inequality and trade using a panel data set of 65 developing economies from 1965 to 2010. Design/methodology/approach This study sets a theoretical framework to explain the growth-trade nexus differentials in the developing economies. The study uses different econometric methods such as General Method of Moments to address the relationship of trade with growth in the presence of high inequalities. Findings The study determines the positive effect of trade on growth both in the short-run and in the long-run. However, the growth effect of trade is substantially influenced by the domestic context in terms of the prevalence of high initial inequalities. The study identifies high initial inequalities in developing countries as the likely reason for a negative relationship between trade and economic growth. The trade-growth nexus is significantly negative for the unequal group but strongly significantly positive for the less unequal one. Practical implications Those developing economic which mange to ameliorate inequalities are in a better position to compete in an open economy. Originality/value The study contributes in the existing literature by answering the question why growth effects of trade are not definitely positive or negative. The findings of the studies may help the policy-makers of developing economies to take the advantage of increasing international trade.

The curvilinear relationship between environmental pollution and economic growth

2020 ◽  
Vol 14 (5) ◽  
pp. 891-910 ◽  
Author(s):  
Haroon Rasool ◽  
Mushtaq Ahmad Malik ◽  
Md. Tarique
Keyword(s):  
Economic Growth ◽  
Environmental Pollution ◽  
Structural Break ◽  
Curvilinear Relationship ◽  
Ekc Hypothesis ◽  
Data Set ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Structural Break Test

Purpose The genesis of Environmental Kuznets curve (EKC) of “grow now clean later” has led to a substantial deterioration of local as well as the global environment. India has not been spared of this malaise and accounts for the third-largest carbon dioxide emitter in the world. Thus, the present study revisits the curvilinear relationship between economic growth and environmental pollution in case of India over the period of 1971-2014. Design/methodology/approach Dickey–Fuller generalised least square (DF-GLS) test developed by Elliott et al. is used to ensure that none of the variables is I(2). The study applies the autoregressive distributed lag (ARDL) bounds estimation technique to test for the existence of cointegration among variables and estimate long-run and short-run parameters. The study also applies the Bai–Perron structural break test with unknown break date to determine the threshold point. The study further uses the vector error correction model (VECM) Granger causality test to check the direction of causality between variables. Findings The ARDL bounds estimation technique confirms the cointegration among variables. The long-run coefficients of energy consumption, economic growth and financial development are found to have an adverse impact on environmental quality. The results also validate the existence of conventional EKC hypothesis. Bai–Perron structural break test, along with t-test and scatter graph, shows that inverted U-shaped relationship between environmental pollution and economic growth holds true. The VECM-based causality results support “growth hypothesis” both in the long run and short run. Research limitations/implications This study refrained from considering a variety of variables, as the main intention of the study is to investigate whether any threshold or turnaround point exists for India. The future studies should consider a new set of variables (e.g. population, corruption index, social indicators, political scenario, energy research and development expenditures, foreign capital inflows, public investment towards alternate energy exploration, etc.) in the estimation of EKC hypothesis. Practical implications The results validate the existence of conventional EKC hypothesis. Thereby the study argues that instead of being a threat to environmental quality, economic growth is observed to generate a sustainable environment to live in. Further, bi-directional causality is found between carbon emissions and economic growth. Thus, any effort to mitigate CO2 or environment conservation policy will impede economic growth. Consequently, controlling primary energy consumption and supply and replacing it with renewable and clean energy could be desirable for climate change mitigation. Originality/value The data set has been refined so that the EKC estimation issues raised by Stern (2004) are addressed. In particular, statistical properties of the data set such as serial correlation, presence of a stochastic or deterministic trend, has been adequately taken care of to remove any spurious correlation. Finally, various control variables have been included to provide consideration to issues of model adequacy, such as the possibility of omitted variables bias. To the authors’ best knowledge, there is no India-specific study which has taken care of data-related issues, as suggested by Stern, in the estimation of a curvilinear relationship between environmental degradation and economic growth in India. Further, this is the first study which has used Bai–Perron structural break test with unknown break date to identify the threshold point while estimating EKC in India.

Economic growth and the development of banking and insurance sector in the post-liberalized India

2017 ◽  
Vol 44 (12) ◽  
pp. 2187-2207 ◽  
Author(s):  
Shrutikeerti Kaushal ◽  
Amlan Ghosh
Keyword(s):  
Economic Growth ◽  
Causality Test ◽  
Data Set ◽  
Content Type ◽  
Vector Error Correction ◽  
Insurance Sector ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Banking Development

Purpose The importance of banking and insurance, as an important part of the financial system, has been well accepted in the growth literature. Acting as financial intermediaries they perform important functions that may contribute in economic growth. Addressing this issue, the purpose of this paper is to empirically examine the relationship between banking, insurance and economic growth in India in the post-liberalized era when the private sector was allowed to operate banking and insurance business. Design/methodology/approach In order to find the long-run and short-run relationship between banking, insurance and economic growth, the study uses the VAR-vector error correction model (VECM) along with Granger causality test to explore any causal relationship. Findings The results indicate that there is the long-term relationship between banking, insurance and economic growth and the causality results show a bi-directional relationship between insurance activity and economic growth; however, banking is not granger cause of insurance or economic growth rather it is economic growth that cause banking development. Research limitations/implications The only limitation to the study is the non-availability of monthly figures of GDP. The study therefore, as suggested by RBI, uses monthly data set of Index of Industrial Production to measure economic growth. Practical implications The findings of the study give policy directions to the policymakers to make strategies that are conducive toward boosting development in insurance in order to achieve the targeted economic growth. Originality/value This work is the first attempt to study the conjoint relationship between banking, insurance and economic growth on the Indian economy after the reforms were initiated in the financial sector.

The relationship between financial development and economic growth in Eswatini (formerly Swaziland)

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Siphe-okuhle Fakudze ◽  
Asrat Tsegaye ◽  
Kin Sibanda
Keyword(s):  
Economic Growth ◽  
Granger Causality ◽  
Financial Development ◽  
Granger Causality Test ◽  
Causality Test ◽  
Content Type ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
The Relationship

PurposeThe paper examined the relationship between financial development and economic growth for the period 1996 to 2018 in Eswatini.Design/methodology/approachThe Autoregressive Distributed Lag bounds test (ARDL) was employed to determine the long-run and short-run dynamics of the link between the variables of interest. The Granger causality test was also performed to establish the direction of causality between financial development and economic growth.FindingsThe ARDL results revealed that there is a long-run relationship between financial development and economic growth. The Granger causality test revealed bidirectional causality between money supply and economic growth, and unidirectional causality running from economic growth to financial development. The results highlight that economic growth exerts a positive and significant influence on financial development, validating the demand following hypothesis in Eswatini.Practical implicationsPolicymakers should formulate policies that aims to engineer more economic growth. The policies should strike a balance between deploying funds necessary to stimulate investment and enhancing productivity in order to enliven economic growth in Eswatini.Originality/valueThe study investigates the finance-growth linkage using time series analysis. It determines the long-run and short-run dynamics of this relationship and examines the Granger causality outcomes.

Has the low level of economic growth spurred informal sector activities in Uganda? An empirical analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Stephen Esaku
Keyword(s):  
Economic Growth ◽  
Informal Sector ◽  
Shadow Economy ◽  
Time Series Data ◽  
Series Data ◽  
Content Type ◽  
Low Level ◽  
Revenue Collection ◽  
Long Run ◽  
Short Run

PurposeIn this paper, the authors examine how economic growth shapes the shadow economy in the long and short run.Design/methodology/approachUsing annual time series data from Uganda, drawn from various data sources, covering the period from 1991 to 2017, the authors apply the ARDL modeling approach to cointegration.FindingsThis paper finds that an increase in economic growth significantly reduces the size of the shadow economy, in both the long and short run, all else equal. However, the long-run relationship between the shadow economy and growth is non-linear. The results suggest that the rise of the shadow economy could partially be attributed to the slow and sluggish rate of economic growth.Practical implicationsThese findings imply that addressing informality requires addressing underlying factors of underdevelopment since improvements in economic growth also translate into a reduction in the size of the shadow economy in the short and long run.Originality/valueThese findings reveal that the low level of economic growth is an issue because it spurs informal sector activities in the short run. However, as the economy improves, it becomes an incentive for individuals to operate in the informal sector. Additionally, tackling shadow activities in the short run could help improve tax revenue collection.

scholarly journals Are some taxes better for growth in Pakistan? A time series analysis

2018 ◽  
Vol 45 (10) ◽  
pp. 1439-1452 ◽  
Author(s):  
Kashif Munir ◽  
Maryam Sultan
Keyword(s):  
Economic Growth ◽  
Time Series ◽  
International Trade ◽  
Sales Tax ◽  
Tax Base ◽  
Content Type ◽  
Long Run ◽  
Indirect Taxes ◽  
Short Run ◽  
The Impact

Purpose The purpose of this paper is to analyze the impact of taxes on economic growth in the long run as well as in the short run. Design/methodology/approach The study uses simple time series model, where real GDP is dependent variable and different forms of taxes are explanatory variables under ARDL framework from 1976 to 2014 at annual frequency for Pakistan. Findings Direct taxes have positive relation with economic growth in the long run. Sales tax, tax on international trade (tariffs) and other indirect taxes have positive impact on economic growth of Pakistan in the long run as well as in the short run. However, sales tax and other indirect taxes impact negatively on economic growth in the short run after one year because people realize decline in their real income. Practical implications Government should increase direct taxes by increasing tax base. Indirect taxes usually indicate negative impact after one and two years; therefore, government should decrease its reliance on indirect taxes. Government should promote tax awareness among the people which increase the tax morale of people and increase the tax base. Originality/value Taxes are disaggregated into direct and indirect taxes, while indirect taxes have been further disaggregated into excise duty, sales tax, surcharges, tax on international trade and other indirect taxes. This study provides useful insight for policy makers in designing taxes and their effect on growth.

Does transportation infrastructure impact economic growth in India?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sreenu Nenavath
Keyword(s):  
Economic Growth ◽  
Economic Development ◽  
Positive Impact ◽  
Transport Infrastructure ◽  
Causality Test ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
The Government ◽  
Determinants Of Economic Growth

Purpose This paper aims to show a long run and causal association between economic growth and transport infrastructure. Design/methodology/approach In this study, the authors use ARDL models through the period 1990 – 2020 to investigate the relationship between transport infrastructure and economic growth in India. Findings The infrastructure has a positive impact on economic growth in India for the long run. Moreover, Granger causality test demonstrates a unidirectional relationship between transport infrastructure to economic development. Stimulatingly, the paper highlights the effect of air infrastructure statistically insignificant on economic growth in the long and short-run period. Originality/value The original outcome from the study delivers an inclusive depiction of determinants of economic growth from transport infrastructure in India, and these findings will help the policymakers to frame policies to improve the transport infrastructure. Hence, it is proposed that the government of Indian should focus more to upsurge the transport infrastructure for higher economic development.

Money and Household Consumption Expenditure in Developing Asia: Some Panel ARDL Evidence

2021 ◽  
pp. 001946622110624
Author(s):  
Ghanashyama Mahanty ◽  
Himanshu Sekhar Rout ◽  
Swayam Prava Mishra
Keyword(s):  
Economic Growth ◽  
Interest Rates ◽  
Household Consumption ◽  
Asia Pacific ◽  
Consumption Expenditure ◽  
Data Set ◽  
Final Consumption ◽  
Long Run ◽  
Short Run

The role of money in influencing real economic activities has been a long-standing debate in macroeconomics. As per the Keynesian theory, household consumption expenditure plays a significant role in promoting economic growth. Given the rapid consumption-led growth pattern in the emerging Asia Pacific region, in this article, we attempt to assess the role of money in influencing household consumption expenditure, which propels economic growth. We employ a panel data set from 2005–2018 for 10 emerging Asian economies, covering Bangladesh, Cambodia, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam. Given the region’s heterogeneous nature, we employ a variant of the popular St Louise equation model with autoregressive distributed lag model (ARDL) panel framework based on pooled mean group (PMG) and dynamic fixed effect (DFE) models developed by Pesaran and Shin to study the underlying relationships. Both PMG and DFE models suggest a strong positive relationship between money and household consumption expenditure both in the long run and short run. After allowing for control variables such as government final consumption expenditure and interest rate, the relationships continue to hold steady. Further, the relationship holds true across both narrow (M1) and broad money (M3) measures. The government final consumption expenditure and interest rates do not have influence on household consumption expenditure in the long run, but they have an influence in the short run. JEL Codes: C23, O16, O47, E51, E31, E21

Effect of economic growth, trade openness, urbanization, and technology on environment of Asian emerging economies

2018 ◽  
Vol 29 (6) ◽  
pp. 1123-1134 ◽  
Author(s):  
Kashif Munir ◽  
Ayesha Ameer
Keyword(s):  
Economic Growth ◽  
Emerging Economies ◽  
New Technologies ◽  
Trade Openness ◽  
Kuznets Curve ◽  
Stirpat Model ◽  
Causality Test ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to analyze the long-run as well as short-run effect of economic growth, trade openness, urbanization and technology on environmental degradation (sulfur dioxide (SO2) emissions) in Asian emerging economies. Design/methodology/approach The study utilizes the augmented STIRPAT model and uses the panel cointegration and causality test to analyze the long-run and short-run relationships. Due to the unavailability of data for all Asian emerging economies, the study focuses on 11 countries, i.e. Bangladesh, Hong Kong, India, Indonesia, Iran, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka and Thailand, and uses balance panel from 1980 to 2014 at annual frequency. Findings Results showed that the inverted U-shape hypothesis of the environmental Kuznets curve holds between economic growth and SO2 emissions. While technology and trade openness increases SO2 emissions, urbanization reduces SO2 emissions in Asian emerging economies in the long run. Unidirectional causality flows from urbanization to SO2 emissions and from SO2 emissions to economic growth in the short run. Practical implications Research and development centers and programs are required at the government and private levels to control pollution through new technologies as well as to encourage the use of disposed-off waste as a source of energy which results in lower dependency on fossil fuels and leads to reduce emissions. Originality/value This study contributes to the existing literature by analyzing the effects of urbanization, economic growth, technology and trade openness on environmental pollution (measured by SO2 emissions) in Asian emerging economies. This study provides the essential evidence, information and better understanding to key stakeholders of environment. The findings of this study are useful for individuals, corporate bodies, environmentalist, researchers and government agencies at large.

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