Optimal Taxation and Economic Growth in Tunisia: Short and Long Run Analysis
Tax policy is among the most common and relevant instruments in the toolkit of policy-makers when thinking about promoting growth, yet there is not compelling evidence regarding its effect in Tunisia. Using a variety of approaches, we measure firstly the optimal tax burden rate using Scullyâ€™s static model and the quadratic model. For Scullyâ€™s static model, gross domestic product is the dependent variable. For the quadratic model, growth rate is a dependent variable explained by tax rate in level and in square. Secondly and according to stationary and cointegration test results, we focus on the long-term effects on gross domestic product of the important taxes, namely tax revenue and private receipts. In this second study, we use a basic Scully model and we develop a vector error correction model technique. Our results show that optimal tax burden rate has to be situated between 12.8% and 19.6% of gross domestic product which is widely lower than the current rates. The long-term analysis estimates an optimal rate of 14% of gross domestic product which can participate to increase economic growth, to stabilize the tax evasion and to encourage investment especially after the Tunisian revolution.
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