The impact of discretionary taxation on economic growth in South Africa
Date
2022
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Abstract
This paper considers the impact of taxes on long run growth in the South African context for the period: 1994 to 2019. The Autoregressive Distributed Lag (ARDL) bounds test was employed to test the long run cointegrating relationship between the variables. Further, in the study, the long run and the short run models were estimated. The results from the cointegration tests show that there is a significant long run relationship between GDP growth and tax revenue. Supply-side theorists advocate for tax cuts to improve growth; however, the results investigated in this paper are contrary to those espoused by supply-side theorists. Tax revenue can potentially improve growth in South Africa if put to good use. There is a stable long run relationship with high levels of significance between GDP and total factor productivity and between GDP and labour forces. Further, the results show a positive yet insignificant relationship between GDP growth and human capital growth. In the short run, results show that there is a positive and insignificant relationship between GDP and tax revenue as well as between GDP and human capital and labour forces. Finally, the results show a significant and positive relationship between Total factor productivity and GDP.
It is recommended that adjustments in the level of government expenditure should be made to promote economic growth in South Africa (Example, invest in education and labour forces for growth).
Description
A dissertation submitted in fulfilment of the requirements for the degree of Master of Commerce to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, 2022
Keywords
Discretionary Taxation, Economic Growth, South Africa