DEVELOPMENTAL IMPACT OF TAXATION ON THE ECONOMIC PERFORMANCE OF SELECTED DEVELOPED ECONOMIES AROUND THE WORLD.

Abstract

Taxation, the primary component of fiscal policy, definitely influences economic production because, in industrialized nations, the government uses the money from taxpayers to build fundamental infrastructure like reliable electricity, well-maintained roads, and water supplies. Therefore, the aim of this study is to investigate the developmental effect of taxes on the economic performance of developed economies around the world. Panel VAR application revealed a short-term correlation between taxation and the economic performance of industrialized countries. While the fitted FMOLS reveals a significant positive impact of taxation and foreign direct investment (FDI) on the long-term economic performance of developed nations, suggesting that higher levels of taxation and FDI return contribute to greater economic performance in the world’s developed economies, the Hausman test specifies a random-effect regression model that confirms the significant positive impact of taxation and GNI on economic performance. As a result, the governments of industrialized nations should keep putting in place a sustainable tax system that is alluring enough to raise tax payments and promote the continuation of FDI and GNI growth, which would improve economic performance both now and in the future