Tax Structure and Economic Indicators in Developing and High-income OECD Countries: Panel Cointegration Analysis

This paper investigates the long-run relationship between tax structure and economic growth and the other economic indicators via panel unit root tests and panel cointegration analysis. Panel unit root tests are carried out to determine the order of integration of panel variables. In order to find out the long-run cointegration relationship, we employ the Kao residual cointegration test. The results of panel cointegration test reveal that there is no long-run cointegrating relationship between tax structure and both of GDP and gross saving (SAVING) in developing countries. Yet, there is an evidence of a strong cointegrating relationship among tax structure and international trade's activities. Conversely, for high-income OECD countries, Kao's test suggests that there is a long-run cointegrating relationship between components of tax revenue and GDP and gross saving, while there is no evidence for imported and exported of goods and services (international trade).