The effect of tax revenue on economic growth in Uganda

Abstract

Despite the many reforms by government to improve domestic revenue mobilization for example formulation of the tax body - URA, introduction of Value Added Tax, wider definition of income tax base etc. The tax revenue collection still remains very low, this builds the motivation for the study which uses the Linear autoregressive distributed lags (ARDL) framework approach to examine the effects of Taxation on economic growth in Uganda covering the period from 1991 to 2022. The study uses annual secondary time series data obtained from the World Development Indicators and Uganda Revenue Authority. The study employed the Augmented Dickey Fuller and Phillips Perron tests to determine the stationarity components of variables and the ARDL bounds tests to examine the presence of a cointegration relationship among the variables. The empirical evidence shows that the findings of the long-run effects of taxation proxied by total tax revenue on economic growth are similar from those of the short-run effects. Increase in tax revenues improves economic growth in both the short run and long run. Furthermore, the study provides strong evidence for linear relationship between economic growth and tax revenues in Uganda. Therefore, the study suggests that the Government of Uganda is encouraged to broaden the tax base in order to increase revenues.