ANALYSIS OF LINEAR AND NON-LINEAR RELATIONSHIPS BETWEEN VALUE ADDED TAX AND ECONOMIC GROWTH IN SOME SELECTED SUB-SAHARA AFRICA COUNTRIES

Abstract

The study investigated the comparative analysis of linear and non-linear relationships between value added tax (VAT) and economic growth in some chosen sub-Sahara Africa countries.

Taxation plays a crucial role in promoting economic activity and growth. Through taxation, government ensures that resources are channeled towards important project in the society while giving succor to the weak. VAT (Value Added Tax) is a broader tax system structured to raise revenue for government. Two research hypotheses were formulated to guide the study and were tested. The data used for this study are randomly chosen with consideration given to countries that have sufficient data for the sample period. 30 countries were chosen among all the sub-Sahara African countries adopting the payment of value added tax from the World Bank Statistical data. The sample period span from 2012 to 2016. Micro-panel data analysis was used to analyze the formulated hypotheses on the basis of the robust check. The researcher employed one- step difference GMM method whose result was confirmed by two-step GMM method. The study however concludes that value added tax has an inverse linear relationship with economic growth. Thus, when there is a decrease in tax there will be an increase in gross domestic product per capital.