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Optimal Taxation and Economic Growth in Tunisia: Short and Long Run Cointegration Analysis

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  • Chokri Terzi

    (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Anis El Ammari

    (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Ali Bouchrika

    (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Khalil Mhadhbi

    (IMM - Institut Marcel Mauss - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

Abstract

Tax policy is among the most common and relevant instruments in the toolkit of policy-makers when thinking about promoting growth, yet there is not compelling evidence regarding its effect in Tunisia. Using a variety of approaches, we measure firstly the optimal tax burden rate using Scully's static model and the quadratic model. For Scully's static model, gross domestic product is the dependent variable. For the quadratic model, growth rate is a dependent variable explained by tax rate in level and in square including dummy variables. Secondly and according to stationary and cointegration test results, we focus on the long-term effects on gross domestic product of the important taxes, namely tax revenue and private receipts including dummy variable. In this second study, we use a basic Scully model and we develop a vector error correction model technique. Our results show that optimal tax burden rate has to be situated between 12.8% and 19.6% of gross domestic product which is widely lower than the current rates. The long-term analysis estimates an optimal rate of 15.2% of gross domestic product which can participate to increase economic growth, to stabilize the tax evasion and to encourage investment especially after the Tunisian revolution.

Suggested Citation

  • Chokri Terzi & Anis El Ammari & Ali Bouchrika & Khalil Mhadhbi, 2017. "Optimal Taxation and Economic Growth in Tunisia: Short and Long Run Cointegration Analysis," Working Papers hal-01541131, HAL.
  • Handle: RePEc:hal:wpaper:hal-01541131
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01541131
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    References listed on IDEAS

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    3. Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-1038, October.
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    Keywords

    cointegration; tax burden rate; growth; vector error correction model;
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