IJMRE International Journal of Management Research and Economics 2710-141X SvedbergOpen ijmre-2-1-003 10.51483/IJMRE.2.1.2022.32-42 Research Paper The Link Between Tax Revenue Components and Economic Growth: Evidence from South Africa. An ARDL Approach PambaDumisani 1 * 1School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville, Durban. South Africa. E-mail: 217076475@stu.ukzn.ac.za *Corresponding author: Dumisani Pamba, School of Accounting, Economics and Finance, University of KwaZulu-Natal, Westville, Durban. South Africa. E-mail: 217076475@stu.ukzn.ac.za 01 2022 2 1 32 42 Abstract

The aim of this study is to examine the link between tax revenue components and economic growth in South Africa, utilizing time series data for the period of 22 years (1994-2016). The stationarity of the variables was established using the Phillips-Perron (PP) unit root test, and the existence of long-run and short-run equilibrium conditions was tested using the Autoregressive Distributed Lag (ARDL) model. As a proxy for economic growth, the study used the real GDP growth rate (RGDP) as the dependent variable, with Company Income Tax (CIT), Personal Income Tax (PIT), taxes on International Trade and Transactions (ITT), Capital Gains Tax (CGT), Foreign Direct Investment (FDI), Inflation (INF), and Gross Savings (SAV) as the independent variables. According to the PP findings, none of the variables are integrated at a higher order than one, i.e., (1). All variables are found to be cointegrated, and all explanatory variables have a long-run link with economic growth. According to the ARDL findings, CIT, PIT, and taxes on ITTs all have a positive long-run and short-run link with economic growth, whereas CGT, FDI, and SAV have a negative long-run and short-run link with economic growth. The long-run coefficient is negatively related to RGDP, while the short-run coefficient revealed a positive link between INF and economic growth, among other findings. Heteroskedasticity and autocorrelation are not present in our model, according to diagnostic tests. The Cumulative Sum (CUSUM) and Cumulative Sum of Squares (CUSUMSQ) values indicate that the model is structurally sound.The aim of this study is to examine the link between tax revenue components and economic growth in South Africa, utilizing time series data for the period of 22 years (1994-2016). The stationarity of the variables was established using the Phillips-Perron (PP) unit root test, and the existence of long-run and short-run equilibrium conditions was tested using the Autoregressive Distributed Lag (ARDL) model. As a proxy for economic growth, the study used the real GDP growth rate (RGDP) as the dependent variable, with Company Income Tax (CIT), Personal Income Tax (PIT), taxes on International Trade and Transactions (ITT), Capital Gains Tax (CGT), Foreign Direct Investment (FDI), Inflation (INF), and Gross Savings (SAV) as the independent variables. According to the PP findings, none of the variables are integrated at a higher order than one, i.e., (1). All variables are found to be cointegrated, and all explanatory variables have a long-run link with economic growth. According to the ARDL findings, CIT, PIT, and taxes on ITTs all have a positive long-run and short-run link with economic growth, whereas CGT, FDI, and SAV have a negative long-run and short-run link with economic growth. The long-run coefficient is negatively related to RGDP, while the short-run coefficient revealed a positive link between INF and economic growth, among other findings. Heteroskedasticity and autocorrelation are not present in our model, according to diagnostic tests. The Cumulative Sum (CUSUM) and Cumulative Sum of Squares (CUSUMSQ) values indicate that the model is structurally sound.The aim of this study is to examine the link between tax revenue components and economic growth in South Africa, utilizing time series data for the period of 22 years (1994-2016). The stationarity of the variables was established using the Phillips-Perron (PP) unit root test, and the existence of long-run and short-run equilibrium conditions was tested using the Autoregressive Distributed Lag (ARDL) model. As a proxy for economic growth, the study used the real GDP growth rate (RGDP) as the dependent variable, with Company Income Tax (CIT), Personal Income Tax (PIT), taxes on International Trade and Transactions (ITT), Capital Gains Tax (CGT), Foreign Direct Investment (FDI), Inflation (INF), and Gross Savings (SAV) as the independent variables. According to the PP findings, none of the variables are integrated at a higher order than one, i.e., (1). All variables are found to be cointegrated, and all explanatory variables have a long-run link with economic growth. According to the ARDL findings, CIT, PIT, and taxes on ITTs all have a positive long-run and short-run link with economic growth, whereas CGT, FDI, and SAV have a negative long-run and short-run link with economic growth. The long-run coefficient is negatively related to RGDP, while the short-run coefficient revealed a positive link between INF and economic growth, among other findings. Heteroskedasticity and autocorrelation are not present in our model, according to diagnostic tests. The Cumulative Sum (CUSUM) and Cumulative Sum of Squares (CUSUMSQ) values indicate that the model is structurally sound.The aim of this study is to examine the link between tax revenue components and economic growth in South Africa, utilizing time series data for the period of 22 years (1994-2016). The stationarity of the variables was established using the Phillips-Perron (PP) unit root test, and the existence of long-run and short-run equilibrium conditions was tested using the Autoregressive Distributed Lag (ARDL) model. As a proxy for economic growth, the study used the real GDP growth rate (RGDP) as the dependent variable, with Company Income Tax (CIT), Personal Income Tax (PIT), taxes on International Trade and Transactions (ITT), Capital Gains Tax (CGT), Foreign Direct Investment (FDI), Inflation (INF), and Gross Savings (SAV) as the independent variables. According to the PP findings, none of the variables are integrated at a higher order than one, i.e., (1). All variables are found to be cointegrated, and all explanatory variables have a long-run link with economic growth. According to the ARDL findings, CIT, PIT, and taxes on ITTs all have a positive long-run and short-run link with economic growth, whereas CGT, FDI, and SAV have a negative long-run and short-run link with economic growth. The long-run coefficient is negatively related to RGDP, while the short-run coefficient revealed a positive link between INF and economic growth, among other findings. Heteroskedasticity and autocorrelation are not present in our model, according to diagnostic tests. The Cumulative Sum (CUSUM) and Cumulative Sum of Squares (CUSUMSQ) values indicate that the model is structurally sound.

 Keywords Tax revenue Foreign Direct Investment (FDI) Inflation (INF) Gross savings Economic growth Autoregressive Distributed Lag (ARDL) model References AhmadS.SialM.H. (2016). Tax and Economic Growth: An Empirical Analysis of Pakistan. European Journal of Business and Social Sciences, 5 (02), 16–29. AnneW.H. (2014). Income Taxes And Economic Performance In Kenya. A Research Paper Submitted to the University of Nairobi, School of Economics, in Partial Fulfilment of the Requirements for the Award of Master of Arts Degree in Economics. ArisoyI.UnlukaplanI. (2010). Tax Composition and Growth in Turkey: An Empirical Analysis. International Research Journal of Finance and Economics, 59, 50–61. ArnoldJ.M.BrysB.HeadyC.JohanssonA.SchwellnusC.VartiaL. (2011). Tax Policy for Economic Recovery and Growth. The Economic Journal, 121, F59–F80. Budget Review (2017). National Treasury, Republic of South Africa. www.treasury.gov.za/documents/national%20budget/2017/review/FullBR.pdf. 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