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TaxationTRANSCRIPT
ESTIMATING THE IMPACT OF STANDARD TAX MEASURES ON ECONOMIC GROWTH: EVIDENCE FROM 5 DEVELOPING ASIAN COUNTRIES
Generoso, Nikki Joy S.
Isidro, Nicole Louise B.
Sy, Mary Tiffany E.
Scope
Standard tax measures Personal income tax Corporate income tax Indirect Tax
Scope
Five (5) developing Asian countries Philippines Indonesia India Sri Lanka Nepal
Defining Conceptual Tags
Corporate Income Tax - tax based on the income made by the corporation
Personal Income Tax - kind of tax imposed on an individual with respect to his/her income
Defining Conceptual Tags
Indirect tax– tax on consumption levied on the sale/exchange/lease of goods or services
Real Gross Domestic Product – inflation-adjusted measure of the value of a nation’s total output of goods and services
Research Questions
What is the impact of the 3 standard tax measures (corporate, income, indirect) as a whole on the economic growth from 5 Asian Developing countries (Philippines, Indonesia, India, Sri Lanka, and Nepal)?
Research Questions
What is the impact of each of the tax measures on the real GDP from 5 Developing Asian countries?
Research Questions
Do higher marginal tax rates automatically lead to a country’s growth and development? Or do lower taxes do better?
Research Simulacrum
Personal Income
Tax
Corporate Income Tax
Value-Added Tax
Real Gross Domestic Product (RGDP)
P1 (-)
P2 (-)
P3 (-)
P4 (-)
Proposition #1
Higher marginal tax rates on all three standard tax policies have a negative impact on the real GDP of the selected five developing Asian countries—Philippines, Indonesia, India, Sri Lanka, and Nepal.
(Poulson and Kaplan 2008, Dahlby and Ferede, 2006, Lee and Gordon, 2004, Romer and Romer, 2007, Geloso and Guenette, 2010, Padda and Akram, 2006, Bonu N. S. and Motau P., 2009, Peter and Kerr 2001)
Proposition #2
Higher tax rates on compensation tax or personal income tax slows down economic growth of this study’s scope.
(Caucutt and Imrohoroglu, 2006, Rider 2006, OECD, 2009, Tripathi, Sinha and Agarwal, 2011, Weichienriede, 2005, Romer and Romer, 2007, Geloso and Guenette, 2010, Arnold, Brys, Heady, Johansson, Schwellnus and Vartia, 2011, Lee and Gordon, 2011, Yamarik, 2000, Rivas 2003)
Proposition #3
Higher tax rates on corporate income taxes have a negative influence on individual and business decisions that decrease economic growth of this study’s scope.
(Rider 2006, Young and Saltiel 2011, Tripathi, Sinha and Agarwal, 2011, Romer and Romer, 2007, Geloso and Guenette, 2010, Arnold, Brys, Heady, Johansson, Schwellnus and Vartia, 2011, Lee and Gordon, 2011, Yamarik, 2000, Rivas 2003)
Proposition #4
Flat tax rates on indirect/sales tax/Value-Added Tax discourage employment, thus leading to lower economic growth of this study’s scope.
(Weichienriede, 2005, Sheshinski 2002, Liao and Lia 2011, Nurudeen and Usman 2010)
Research Method
The researchers’ study is quantitative in nature and is going to have a panel data that will cover periods starting from 1992-2010.
Research Method
Eq. 1 (RGDPit ) = β0 - (β1τit) - (β2 tit ) - (β3 sit ) -
Eq.2 (RGDPit) = ʆ0-(ʆ1τit)- Eq.3 ln(RGDPit) = Ɣ0-ln(Ɣ2tit)- Eq.4 ln(RDGPit ) = Ω0 - ln(Ω3 sit )-
Research Method
Where
RGDPit = real gross domestic product of each country belonging
to the scope of the study
τit = percentage share of personal income tax in the total revenue
tit = percentage share of the consumption tax/ taxes on goods
and services (VAT) as a part on the total revenue
sit = percentage share of the corporate income tax as a share in
the total revenue
e = stochastic error term
Results
Negative impact of all three standard tax variables on the economic growth (rGDP) of the 5 developing Asian countries
Results
Negative relationship between compensation tax/personal income tax and economic growth (rGDP)
Results
Negative relationship between corporate income tax and economic growth (rGDP)
Results
Negative relationship between indirect tax and economic growth (rGDP)
Policy Implications
In a developing country with low levels of human capital, income and investments, imposing higher tax rates will reduce incentives to:
Entrepreneurs Employees Consumers
Recommendations
Comparison between developing Asian countries and developed Asian countries
Allocation of tax revenues to different public sector activities