Effect of taxation on economic growth in Uganda (2000-2020)

Abstract

The study used quarterly time series data from 2000 to 2020 to investigate the impact of taxation on economic growth in Uganda. The researcher wanted to look into the impact of direct and indirect taxes on Uganda's economic growth. The study employed the Vector Error Correction Model (VECM) and Ordinary Least Squares (OLS) to investigate the relationship between GDP as a proxy for growth and the independent variables (Indirect taxes, Direct taxes and Inflation). The study's theoretical framework was based on the endogenous growth model. The empirical findings indicate a long-run relationship between the variables. The Vector Error Correction coefficient of (-0.05) indicated that approximately 5% of the errors would be corrected in the long run, resulting in convergence. Finally, the ordinary least squares results revealed that direct domestic taxes have a positive impact on economic growth, but the value for indirect taxes was insignificant, failing all conventional levels of significance (1%, 5%, and 10%). It was suggested that the government work to broaden the tax base by focusing on direct taxes while also maintaining a low level of inflation in order to stimulate economic growth in Uganda.