TAX REFORM, INFLATION, FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN MALAYSIA

Nanthakumar Loganathan, Suraya Ismail (), Dalia Streimikiene, Asan Ali Golam Hassan (), Edmundas Kazimieras Zavadskas and Abbas Mardani
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Suraya Ismail: Faculty of Economics and Management Sciences, Universiti Sultan Zainal Abidin, 21300, Kuala Terengganu, Terengganu, Malaysia
Dalia Streimikiene: Lithuanian energy institute, Breslaujos 3, LT-433303
Asan Ali Golam Hassan: Azman Hashim International Business School, Universiti Teknologi Malaysia Kuala Lumpur, 54100 Kuala Lumpur, Malaysia
Edmundas Kazimieras Zavadskas: Department of Construction Technology and Management, Vilnius Gediminas Technical University, Sauletekio al. 11, Vilnius LT-10223, Lithuania.

Journal for Economic Forecasting, 2017, issue 4, 152-165

Abstract: This study explores the dynamic linkage between financial development, inflation and economic growth on tax revenue condition for Malaysia. The Maki’s cointegration test with various structural breaks, bootstrap rolling window causality applications and the Lind and Mehlum (2010) estimation to capture the U-shape condition of tax-led-growth fundamental theory used in this study.The major finding using quadratic estimates indicates an inverted U-shape effect between the economic growths towards the tax revenue. When discussing about the full sample causality analysis, we found that there is unidirectional causality running between taxation with financial development and inflation; and there is also a unidirectional causality running from GDP to taxation. Furthermore, by using the bootstrap rolling window causality, we found numerous sup-period predictive powers of causalities running between taxation, financial development, inflation and economic growth. Overall, the findings indicate a growth-led-taxation effect in Malaysia due to the inverted U-shape effect appeared in this study.

Keywords: economic growth; financial development; inflation; taxation (search for similar items in EconPapers)
JEL-codes: F63 G17 H21 (search for similar items in EconPapers)
Date: 2017
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