ESTIMATING THE EFFECT OF TAXATION ON THE ECONOMIC GROWTH OF SIERRA LEONE USING A TIME SERIES ANALYSIS

Desmond Emmanuel Adeshegun Songo Davies, Joseph M. B. Heimoh

Abstract


This study delves into the impact of taxation on the economic growth of Sierra Leone, aiming to establish a comprehensive understanding of the intricate relationship between taxation and the country's economic trajectory. Employing time series data spanning from 1995 to 2022, the study utilizes the Auto Regressive Distributed Lag (ARDL) framework for analysis. Unit root analysis reveals that certain variables remain stable at levels, while others achieve stability at their first difference. The bound test cointegration results affirm the presence of cointegration, indicating a long-term relationship between taxation and economic growth in Sierra Leone. The study highlights the overall significance of explanatory variables in explaining Gross Domestic Product (GDP). The coefficient of determination indicates that 77.37 percent of GDP variation is explained by indirect taxes, other taxes, interest rates, and foreign direct investment. Notably, the coefficient of indirect taxes demonstrates a negative and statistically significant influence on short-term economic growth in Sierra Leone. In contrast, interest rates exhibit positive and individually significant effects on short-term economic growth. The findings suggest that indirect taxes in Sierra Leone stimulate consumption but reduce savings. Consequently, policymakers are urged to prioritize enhancing international relations to attract Foreign Direct Investment (FDI) and promote export activities, thereby bolstering export revenue and fostering economic growth.

 

JEL: O11, O23, H20, H22, C22, F21, E62

 

Article visualizations:

Hit counter


Keywords


taxation, economic growth, time series analysis, Sierra Leone

Full Text:

PDF

References


Abala, D. (2014). Foreign Direct Investment and Economic Growth. An Empirical Analysis of Kenyan Data. DBA African Management Review. Vol. 4(1), pp. 62-83.

Abdullah, Sabah, and Bruce Morley (2014). Environmental taxes and economic growth: Evidence from panel causality tests. Energy Economics, 42 27-33.

Bahl, R.W. (1971). A Regression Approach to Tax Effort and Tax Ratio Analysis, IMF Staff Papers, Vol. 18, pp. 570-612.

Barro, R.J. (1990). Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy, Vol. 98 pp.s103-s125

Bhatia, H.L. (2003). Public Finance 24th revised edition. New Delhi.

Bird, R.,J. Martinez-Vazquez and B. Torgler (2006). Societal Institutions and Tax Effort in Developing Countries, in: J. Alm, J. Martinez-Vazquez and M. Rider (eds.), The Challenges of Tax Reform in the Global Economy. New York: Springer, pp. 283-338.

Chaudhry, I.S. and Munir, F. (2010). Determinants of Low Tax Revenue in Pakistan, Pakistan Journal of Social Sciences Vol.30, No.2, pp.439-452.

Chidakwa, A.M. (1996). Revenue Productivity of Zimbabwean Tax System. M.A. Thesis - University of Zimbabwe.

Chelliah, R. J. (1971). Trends in Taxation in Developing Countries, IMF Staff Papers, Vol. 18, No. 2, pp.254-325.

Chipeta, C. (1998). Reform and Tax Yield in Malawi AERC RP No. 81 March 1998 Nairobi.

Dahlby, Ergete Feredeand Bev. (2012). The impact of tax cuts on economic growth: Evidence from the Canadian provinces. National Tax Journal 65.3 563-594.

Due J.F. (1970). Indirect Taxation in Developing Countries. The John Hopkins University Press, Baltimore.

Duncan O. (2003). The Impact of Indirect Taxation in Developing Countries. M.A. Thesis, University of Nairobi.

Easterly, W. and S. Rebello (1994). Fiscal Policy and Economic Growth-An Empirical Investigation. Centre for Economic Policy Research, Discussion Paper.

Engen, E.M. and J. Skinner (1992). Fiscal Policy and Economic Growth. NBER

Ghura, D. (1998). Tax revenue in Sub-Saharan Africa: Effects of Economic Policies and Corruption. IMF Working Paper 98/135 (Washington: International Monetary Fund).

Government of Kenya (2008), Kenya Vision 2030: Towards a globally, competitive and prosperous Kenya, Nairobi: Ministry of Planning National Development & Vision 2030.

Gujarati, D.N. (2004). Basic Econometrics 4th edition. McGraw-Hill, Book companies, New York.

Gupta, S.A. (2007). Determinants of Tax Revenue Efforts in Developing Countries, IMF Working Washington D.C.). Paper (WP/07/184.

Islam, M.A. (1979). Tax Effort in Bangladesh: Some Empirical Observation, Journal of Bangladesh Development Studies, Vol. 7, pp.83-92.

Johansson, A. et al. (2008). Tax and Economic Growth, Economic Department Working Papers, 620

Kotlan, I. and Zuzana, M. (2012). The Influence of Corporate Taxation on Economic Growth: The Failure of Tax Quota?. Politická ekonomie 6 (2012): 743-763.




DOI: http://dx.doi.org/10.46827/ejefr.v8i1.1644

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Desmond Emmanuel Adeshegun Songo Davies, Joseph M. B. Heimoh

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

The research works published in this journal are free to be accessed. They can be shared (copied and redistributed in any medium or format) and\or adapted (remixed, transformed, and built upon the material for any purpose, commercially and\or not commercially) under the following terms: attribution (appropriate credit must be given indicating original authors, research work name and publication name mentioning if changes were made) and without adding additional restrictions (without restricting others from doing anything the actual license permits). Authors retain the full copyright of their published research works and cannot revoke these freedoms as long as the license terms are followed.

Copyright © 2016 - 2023. European Journal of Economic and Financial Research (ISSN 2501-9430) is a registered trademark of Open Access Publishing Group. All rights reserved.

This journal is a serial publication uniquely identified by an International Standard Serial Number (ISSN) serial number certificate issued by Romanian National Library. All the research works are uniquely identified by a CrossRef DOI digital object identifier supplied by indexing and repository platforms. All the research works published on this journal are meeting the Open Access Publishing requirements and standards formulated by Budapest Open Access Initiative (2002), the Bethesda Statement on Open Access Publishing (2003) and  Berlin Declaration on Open Access to Knowledge in the Sciences and Humanities (2003) and can be freely accessed, shared, modified, distributed and used in educational, commercial and non-commercial purposes under a Creative Commons Attribution 4.0 International License. Copyrights of the published research works are retained by authors.