Effect of taxation on the gross domestic product of Uganda (2000-2021)

Abstract

This research aims to analyze the short run and long-term relationship of taxation on the Gross Domestic Product (GDP) of Uganda. The research is macro in nature since it comprises of macro-economic variables that is tax revenue and Gross Domestic Product. The research uses GDP as the dependent variable and tax revenues as the independent variable to determine the statistical significance of tax revenues on GDP changes in Uganda. Both the variables are continuous in nature and time series data is used in this research and it covers a period of twenty-two years. Tax revenues are a vital component of a country's economy, and they play a significant role in promoting economic growth by augmenting government spending on essential programs and infrastructure development. Hence, the effect of tax revenues on a country's economic performance has been a recurrent topic in economic studies. The study uses quantitative methods and econometric models such as simple linear regression to measure the magnitude and direction of this relationship on a real-time basis. The findings of this study could have significant policy implications for the government of Uganda. The data used in this study was collected from the Uganda Revenue Authority and the World Bank, covering the period from 2000 to 2021. The study employed regression analysis and correlation analysis to investigate the relationship between domestic tax revenues and GDP. The results of the analysis showed a very strong positive relationship between the two variables. The coefficient of correlation was very high, indicating that an increase in tax revenues leads to an increase in the Gross Domestic Product. The study found that domestic tax revenues are a significant predictor of GDP in Uganda. This suggests that an increase in domestic tax revenues will lead to an increase in GDP. The findings of this study are consistent with previous research conducted by other scholars in different countries. In conclusion, this study provides evidence that taxation has a positive effect on the economic growth of Uganda. The government of Uganda could use this information to develop policies aimed at increasing domestic tax revenues, which will, in turn, lead to an increase in GDP. The study recommends that the government of Uganda should focus on increasing tax compliance, improving tax administration, and reducing tax evasion to increase domestic tax revenues.