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Do Financial Sector Activities Affect Tax Revenue in Pakistan?

Author

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  • Naeem Akram

    () (Assistant Chief, Economic Affairs Division, Islamabad, Pakistan)

Abstract

By mobilizing savings, financial markets play a crucial role in economic development. Given that the literature does not fully explore the nexus between financial activities and tax revenue, this study attempts to analyze the role of financial markets in generating tax revenue in Pakistan, using time series data for the period 1975–2014. It finds that, in the long run, the number of bank branches and market capitalization have a positive and significant impact on tax revenue. While credit to the private sector has a bidirectional relationship with tax revenue, public sector credit has an insignificant impact. In the short run, only the number of bank branches and market capitalization have a significant impact on tax revenue.

Suggested Citation

  • Naeem Akram, 2016. "Do Financial Sector Activities Affect Tax Revenue in Pakistan?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 21(2), pages 153-169, July-Dec.
  • Handle: RePEc:lje:journl:v:21:y:2016:i:2:p:153-169
    as

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    File URL: http://lahoreschoolofeconomics.edu.pk/EconomicsJournal/Journals/Volume%2021/Issue%202/06%20Akram.pdf
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    References listed on IDEAS

    as
    1. Demirgüç-Kunt, Asli & Huizinga, Harry, 2001. "The taxation of domestic and foreign banking," Journal of Public Economics, Elsevier, vol. 79(3), pages 429-453, March.
    2. Laopodis, Nikiforos T., 2009. "Fiscal policy and stock market efficiency: Evidence for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 633-650, May.
    3. John E. Golob, 1995. "How would tax reform affect financial markets?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 19-39.
    4. Ihtsham Ul Haq Padda & Naeem Akram, 2009. "The Impact of Tax Policies on Economic Growth: Evidence from South-Asian Economies," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 48(4), pages 961-971.
    5. Ardagna, Silvia, 2009. "Financial Markets’ Behavior Around Episodes of Large Changes in the Fiscal Stance," Scholarly Articles 2579824, Harvard University Department of Economics.
    6. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-1230, December.
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    9. Ardagna, Silvia, 2009. "Financial markets' behavior around episodes of large changes in the fiscal stance," European Economic Review, Elsevier, vol. 53(1), pages 37-55, January.
    10. Arin, K. Peren & Mamun, Abdullah & Purushothman, Nanda, 2009. "The effects of tax policy on financial markets: G3 evidence," Review of Financial Economics, Elsevier, vol. 18(1), pages 33-46, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Financial sector; financial liberalization; tax revenue; Pakistan;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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