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Analyzing Tax Policy and Economic Growth by Using Semi-Parametric Approach

Author

Listed:
  • Mariuam SHAFI

    () (Department of Economics, Lahore College of Women University, Lahore, Pakistan.)

  • Zahid ASGHAR

    () (Department of Statistics, Quaid e Azam University, Islamabad, Pakistan.)

  • Saqlain RAZA

    () (COMSATS Institute of Information Technology, Islamabad, Pakistan.)

Abstract

Due to complexities in measuring the impact of tax policy on economic growth, there is need to explore functional relationship between response and predictors. Semi-parametric approaches are often very handy in modeling relationships which are non-linear but cant be completely described either through parametric or non-parametric approaches. To determine the effects of tax policy on economic growthfunctional, cubic smoothing spline method is used along with cross validation test to control the smoothing parameter. To replace the functional form of smoothing coefficients into linear mixed model, maximum likelihood estimation is used. Results indicate that proposed methodology is robust in determining functional form and in achieving increasing average marginal tax rates has negative impact on economic growth results. Empirical results indicate that high AMTRs and population growth rate reduce the performance of economic growth in the developing countries. A reduction on dependence of AMTRs in South Asian countries is needed.

Suggested Citation

  • Mariuam SHAFI & Zahid ASGHAR & Saqlain RAZA, 2016. "Analyzing Tax Policy and Economic Growth by Using Semi-Parametric Approach," Journal of Economic and Social Thought, KSP Journals, vol. 3(4), pages 521-533, December.
  • Handle: RePEc:ksp:journ3:v:3:y:2016:i:4:p:521-533
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Spline smoothing method; Semi-parametric; Tax structure; Economic growth; Average marginal tax rate.;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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