Abstract

The aim of this study is to examine the link between tax revenue components and economic growth in South Africa, utilizing time series data for the period of 22 years (1994-2016). The stationarity of the variables was established using the Phillips-Perron (PP) unit root test, and the existence of long-run and short-run equilibrium conditions was tested using the Autoregressive Distributed Lag (ARDL) model. As a proxy for economic growth, the study used the real GDP growth rate (RGDP) as the dependent variable, with Company Income Tax (CIT), Personal Income Tax (PIT), taxes on International Trade and Transactions (ITT), taxes on income, profits, and Capital Gains Tax (CGT), Foreign Direct Investment (FDI), Inflation (INF), and Gross Savings (SAV) as the independent variables. According to the PP findings, none of the variables are integrated at a higher order than one, i.e., (1). All variables are found to be cointegrated, and all explanatory variables have a long-run link with economic growth. According to the ARDL findings, CIT, PIT, and taxes on ITTs all have a positive long-run and short-run link with economic growth, whereas CGT, FDI, and SAV have a negative long-run and short-run link with economic growth. The long-run coefficient is negatively related to RGDP, while the short-run coefficient revealed a positive link between INF and economic growth, among other findings. Heteroskedasticity and autocorrelation are not present in our model, according to diagnostic tests. The Cumulative Sum (CUSUM) and Cumulative Sum of Squares (CUSUMSQ) values indicate that the model is structurally sound.

Keywords: Tax revenue, Foreign Direct Investment (FDI), Inflation (INF), Gross savings, Economic growth, Autoregressive Distributed Lag (ARDL) model