Tax revenue-economic growth relationship and the role of trade openness in developing countries

Figures & data

Table 1. Variable definition

Variables	Definitions and measures	Source
LnGDP	Real per capita income (logarithmic). GDP at constant price and constant PPP per population aged 15–64.	WDI
TR	Total tax revenue-to-gross domestic product GDP	WDI
OPEN	The ratio of exports and imports to gross domestic product GDP	WDI
GOV	(% GDP) Government final consumer spending includes all expenditures on the purchase of goods and services and expenditures on defense and security, but does not include government military expenditures.	WDI
INV	(% GDP) Foreign direct investment is the net inflow of capital to obtain long-term management benefits. It is the sum of equity capital, reinvested income, other long-term capital, and short-term capital shown in the balance of payments; shows the net inflows (new investment inflows less than inflows) into the reporting economy from foreign investors, divided by GDP.	WDI
INF	Measured by the consumer price index, it reflects the annual percentage change in the cost that the average consumer takes to obtain a good or service, which can be fixed or variable over specified time period, e. g., years.	WDI
POP	Annual population growth rate. Population is based on the actual definition of population, counting all residents, regardless of legal status or nationality (%).	WDI

Table 2. Descriptive statistic

Variables	Obs	Mean	Std. Dev	Min	Max
LnGDP	609	1760.083	1220.325	179.426	4638.635
TR	609	14.175	5.424	2.479	39.987
OPEN	609	79.113	34.075	25.993	211.499
GOV	609	13.052	6.545	−1.092	43.483
INV	609	6.089	13.780	−37.172	80.665
INF	609	6.065	5.983	−18.108	48.699
POP	609	1.549	1.081	−1.718	4.668

Note: This table presents descriptive statistic of main variables. See Table 1 for variable definitions.

Table 3. Correlation matrix

	LnGDP	TR	OPEN	GOV	INV	INF	POP	VIF
LnGDP	1.000
TR	0.204*	1.000						3.43
OPEN	0.047	0.530*	1.000					3.97
GOV	−0.044	0.572*	0.360*	1.000				1.87
INV	0.225*	0.075*	0.112*	−0.279*	1.000			1.25
INF	−0.123*	0.021	0.073*	−0.024	−0.082	1.000		1.03
POP	−0.386*	−0.456*	−0.287*	−0.132*	−0.156*	−0.060	1.000	1.32

Note: This table presents correlation matrix of main variables. See Table 1 for variable definitions. * significant at 10% level or better.

Table 4. Results of fixed effect estimation and generalized least square

Variables	FEM		GLS
	Coeff (t-stat)	Coeff (t-stat)	Coeff (z-stat)	Coeff (z-stat)
	(1)	(2)	(3)	(4)
TR	0.0691***	0.0619***	0.0101**	0.0095**
	(8.32)	(7.37)	(2.55)	(2.44)
OPEN	−0.0047***	−0.006***	−0.0012	−0.0013*
	(−3.03)	(−3.98)	(−1.54)	(−1.77)
GOV	−0.0162	−0.012	−0.0091***	−0.0091***
	(−1.44)	(−1.15)	(−3.00)	(−3.03)
INV	0.0151***	0.016***	0.0040***	0.0041***
	(3.42)	(3.65)	(2.86)	(2.92)
INF	−0.0211***	−0.019***	−0.0008	−0.0009
	(−5.22)	(−4.79)	(−0.78)	(−0.84)
POP	−0.1186**	−0.077	−0.2140***	−0.2111***
	(−1.97)	(−1.29)	(−5.54)	(−5.50)
TR*OPEN		0.0002***		0.00005***
		(3.93)		(2.83)
Cons	7.0167***	6.8312***	7.5414***	7.4788***
	(35.06)	(33.61)	(68.46)	(67.35)
R-square	0.1847	0.0919
Wald test (P-value)			0.0000	0.0000
Obs	609	609	609	609

Note: This table presents the estimation results of Equations 1(1) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}+{\alpha }_2{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(1) and 2(2) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}+{\alpha }_2\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPE}}{N}_{\mathit{\text{it}}}+{\alpha }_3{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(2) by applying FEM and GLS estimation method, respectively. See Table 1 for variable definitions. *, **, *** mean significant at 10%, 5% and 1%, respectively.

Table 5. The results of a non-linear relationship among tax revenue, trade openness, and economic growth

Variables	FEM		GLS
	Coeff	t-stat	Coeff	z-stat
	(1)		(2)
TR	0.2027***	3.68	0.1540***	6.56
OPEN	−0.0000	−0.00	0.0165***	7.82
GOV	−0.0102	−0.52	−0.0121**	−2.45
INV	0.0169***	2.94	0.0019*	1.78
INF	−0.0174**	−2.13	−0.0173***	−4.41
POP	−0.0323	−0.18	−0.2770***	−10.83
TR*OPEN	0.0000***	2.70	0.0000***	2.52
TR*OPEN_2	−0.0022**	−2.88	−0.0011***	−2.83
Cons	6.1604***	8.16	5.7440***	26.75
R-square	0.1251
Wald test (P-value)			0.0000
Obs	609		609

Note: This table presents the estimation results of Equations 1(1) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}+{\alpha }_2{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(1) and 2(2) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}+{\alpha }_2\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPE}}{N}_{\mathit{\text{it}}}+{\alpha }_3{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(2) by applying the FEM and GLS estimation methods, respectively. See Table 1 for variable definitions. *, **, *** indicate significant at 10%, 5%, and 1%, respectively.

Table 6. Robustness test-System GMM estimation results

	Coeff	t-stat	Coeff	t-stat	Coeff	t-stat
Variables	(1)		(2)		(3)
TR	0.0390*	1.87	0.1427***	5.28	0.5132***	2.90
OPEN	−0.2466**	−2.29	−0.2391**	−2.72	−0.1130	−0.90
GOV	−0.0019	−0.45	0.0134**	2.51	0.0301**	2.12
INV	−0.0244	−1.26	−0.0091	−0.66	−0.0168	−0.75
INF	0.0038	0.63	0.0045	1.05	0.0042	0.73
POP	−0.0444***	−3.41	−0.0352***	−3.64	0.0060	0.55
TR*OPEN			0.0010***	4.71	0.0000*	2.02
TR*OPEN_2					−0.0055**	−2.33
Cons	7.7743***	15.82	56.0510***	10.59	2.7279*	1.80
AR2 (p-value)	0.607		0.483		0.473
Hansen J (p-value)	0.135		0.451		0.542
No of instruments	21		25		26
Obs	609		609		609

Note: This table presents the System GMM estimation results for Equations 1(1) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}+{\alpha }_2{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(1) , 2(2) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}+{\alpha }_2\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPE}}{N}_{\mathit{\text{it}}}+{\alpha }_3{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(2) , and 3(3) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}++{\alpha }_2\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPE}}{N}_{\mathit{\text{it}}}+{\alpha }_3\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPEN}}\mathrm{\_}{2}_{\mathit{\text{it}}}+{\alpha }_4{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(3) . See Table 1 for variable definitions. *, **, *** mean significant at 10%, 5%, and 1%, respectively.

Table 7. Robustness test-an alternative measure of excessive trade openness

	FEM		GLS		GMM
	Coeff	t-stat	Coeff	z-stat	Coeff	t-stat
Variables	(1)		(2)		(3)
TR	0.0749	1.40	0.1608***	14.97	0.2782*	1.83
OPEN	−0.0006**	−2.09	−0.0146***	−6.66	0.0238	1.26
GOV	−0.0157	−0.77	0.0128***	2.57	0.0142*	1.71
INV	0.0152***	2.76	0.0019*	1.80	0.0012	0.20
INF	−0.0218**	−2.57	−0.0174***	−4.51	−0.0187***	−2.05
POP	−0.1020	−0.60	−0.2726***	−10.72	−0.2443	−1.45
TR*OPEN	0.0001	1.08	0.0012***	12.90	0.0019***	2.56
TR*EXOPEN	−0.0026**	−1.99	−0.0016*	−1.92	−0.0012	−0.22
Cons	6.7604***	9.16	5.8189***	32.30	4.44138	1.86
R-square	0.1668
Wald test (P-value)	0.0000			0.0000
AR2 (p-value)					0.538
Hansen J (p-value)					0.026
No of instruments					28
Obs	609			609	609

Note: This table presents System GMM estimation results for Equation 3(3) $\mathit{\text{lnGD}}{P}_{i,t}={\alpha }_0+{\alpha }_{1}T{R}_{i,t}++{\alpha }_2\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPE}}{N}_{\mathit{\text{it}}}+{\alpha }_3\mathit{\text{TR}}\mathit{\ast }\mathit{\text{OPEN}}\mathrm{\_}{2}_{\mathit{\text{it}}}+{\alpha }_4{X}_{\mathit{\text{it}}}+{\mu }_{\mathit{\text{it}}}$(3) . See Table 1 for variable definitions. *, **, *** mean significant at 10%, 5% and 1%, respectively.

Table

No	Country	No	Country
1	Afghanistan	16	Madagascar
2	Armenia	17	Mali
3	Bangladesh	18	Moldova
4	Bhutan	19	Mongolia
5	Burkina Faso	20	Morocco
6	Cambodia	21	Nepal
7	Congo, Rep.	22	Nicaragua
8	Cote d’Ivoire	23	Philippines
9	Egypt	24	Sri Lanka
10	El Salvador	25	Togo
11	Ghana	26	Tunisia
12	Guatemala	27	Ukraine
13	India	28	Vietnam
14	Indonesia	29	Zambia
15	Lesotho