The effect of tax effort on economic growth in Uganda

Abstract

This study examines the effect of the tax effort on the economic growth in Uganda for the period of 1990-2021. Secondary data is used and sourced from the World Development Indicators. The variables considered are the natural log of gross domestic product (GDP) as a proxy for economic growth, tax revenue over GDP, inflation, gross capital formation, labour force and real interest rate. The Autoregressive Distributed Lag (ARDL) model is used to investigate the effect of tax effort on economic growth, and the bounds test was used to investigate the existence of a long-run relationship between the variables under study. The results revealed a significantly positive relationship between the tax effort and the economic growth of Uganda. The paper, therefore, recommends that the government should lessen the tax burden by reviewing the tax structure to reflect the real value, combining taxation and other policies to improve economic efficiency and also making taxation more efficient by ensuring an increase in the number of taxpayers other than increasing the taxes. Key words: Tax effort, Economic growth, ARDL, Uganda