Optimal Taxation and Economic Growth in Tunisia: Short and Long Run Analysis

Abstract

Tax policy is among the most common and relevant instruments in the toolkit of policy-makers when thinking about promoting growth, yet there is not compelling evidence regarding its effect in Tunisia. Using a variety of approaches, we measure firstly the optimal tax burden rate using Scully's static model and the quadratic model. For Scully's static model, gross domestic product is the dependent variable. For the quadratic model, growth rate is a dependent variable explained by tax rate in level and in square. Secondly and according to stationary and cointegration test results, we focus on the long-term effects on gross domestic product of the important taxes, namely tax revenue and private receipts. In this second study, we use a basic Scully model and we develop a vector error correction model technique. Our results show that optimal tax burden rate has to be situated between 12.8% and 19.6% of gross domestic product which is widely lower than the current rates. The long-term analysis estimates an optimal rate of 14% of gross domestic product which can participate to increase economic growth, to stabilize the tax evasion and to encourage investment especially after the Tunisian revolution.

The Optimal Threshold of Tax Revenue for Economic Growth: An Investigation into the ASEAN 5+1 Countries

“…This reflects that the countries in Southeast Asia, except Singapore, are still in the developing phase, and tax revenue plays an important role in financing resources for infrastructure innovation and human resource development, indispensable factors in economic development in general. This situation contrasts with the results presented in a similar study by Chokri and Ali (2018) in Tunisia, whereby the author estimated the optimal threshold of tax revenue to be much lower than the current ratio of tax revenue to GDP in this country.…”

“…According to the argument of Chokri and Ali (2018), the optimal threshold of tax revenue is low compared to reality, which reflects that the use of tax revenue is still ineffective, and tax revenue is not allocated to the targets by growth. Therefore, it can be inferred that the countries in the Southeast region are making good use of tax revenue to serve their growth targets, and the growth potential of this region is still being maintained.…”

“…In Tunisia, with the data from 1966 to 2015, Chokri and Ali (2018) used a quadratic function model to estimate the optimal ratio of tax revenue to GDP for economic growth. According to the estimation results, the authors conclude that Tunisia's tax revenue ratio to GDP should be 19.6% to reach the maximum growth rate of 4.93%.…”

The Causal Relationship between Exports, Imports and Economic Growth in Palestine

“…Economic growth is one of the prime long-run concerns of macroeconomists and policy makers (Chokri, El Ammari, and Bouchrika 2018). For a society to achieve an increasing standard of living, total output must growth.…”

Tax Revenue and Public Service Delivery: Evidence From Nigeria

“…Therefore, more taxpayers are likely to defraud or to avoid paying taxes, due to higher taxes demanded by the government. However, lower taxes reduce the likelihood of fraud and tax evasion (Chokri et al, 2017). Engen and Skinner (1992) described five ways taxes might have adverse effect on economic growth.…”