Effects of taxation on economic growth in Uganda

Abstract

The purpose of the study was to determine the effect of Taxation and economic growth in Uganda from 1993 to 2021. The study made use of secondary data collected from World Bank data base for the relevant years. The specific objectives of the study were to determine the level of tax revenue in Uganda, and to examine the relationship between taxation and economic growth from 1993 to 2021. The null hypotheses of the study were; there is No stationary trend on taxation in Uganda, there is No significant relationship between taxation and economic growth in Uganda. The results of the study show that tax revenue has an increasing trend over time and GDP level has been increasing over time in Uganda. The study developed an autoregressive integrated moving average (ARIMA) model to examine the effects of taxation on economic growth. The results of the estimated model specify that the first, second and third lag of time series data about tax revenue are statistically significant predictors of the future tax level since P-value is less than 0.05, this implies that the past realization of the tax revenue levels has a negative influence on the tax revenue levels at 5% level of significance. The results also indicate that the first, second, and third lag of time series data about GDP are statistically significant predictors of the future GDP levels since the P-value is less than 0.05, implying that the past realization of the GDP levels has a negative influence on the GDP levels at 5% significance level. Also results indicate that the lag of the residual term in the model is a statistically significant predictor of the GDP level at 5% significance level since the P-value is less than 0.05; this implies that the lag of the residual term negatively predicts the GDP level at 5% significance level. The study also found out that there is a strong positive relationship between taxation and economic growth in Uganda as an increase in taxation increases in the levels of economic growth. Therefore, based on study findings, the study concludes that taxation has a positive significant impact on economic growth. This is because an increase in tax revenue increases the GDP levels. Government should design public policies, implement, audit and other checks and balances to ensure efficient use of public funds so as to promote and increase economic growth.