The relationship between tax revenue and economic growth: an empirical study in Vietnam

Abstract

This paper focuses on examining the impact of tax revenue on economic growth in Vietnam. In particular, tax revenue is measured through tax revenue ratio or the government's total tax revenue to GDP. The research data were collected on a yearly basis in the period 1990-2019. Through the vector autoregressive (VAR) model, the paper has achieved great success when finding the positive impact of tax revenue (TAX) on economic growth in Vietnam; however, this impact is negative in the long term. Conversely, economic growth has a positive impact on tax revenue with one lag and three lags. In addition, economic growth in Vietnam is affected by domestic savings (SAV), trade openness (OP), government spending (GOV), and domestic investment (CAP); meanwhile, tax revenue is affected by domestic savings (SAV), trade openness (OP), and government spending (GOV). The paper is the first empirical evidence in Vietnam for the relationship between tax revenue and economic growth. Therefore, the research results have important implications for the Government of Vietnam to have a basis to administer tax policies in order to stimulate economic growth in a sustainable way.