موضوعات
عنوان مقاله English
نویسندگان English
Considering the importance of the relationship between tax performance and institutional quality, this study incorporates sub-indices of economic freedom into the traditional tax revenue model to examine their effects on the tax ratio. Additionally, a separate model investigates the impact of the tax ratio and oil rents on economic freedom across 10 oil-rich countries between 2011 and 2021. Employing a panel data approach and the Generalized Least Squares (GLS) method, the results reveal that GDP per capita has a positive effect on the tax ratio, while the agriculture-to-industry share in GDP exerts a negative and significant influence. Among the four pillars of economic freedom, “government size” and “open markets” indices negatively affect the tax ratio, whereas “rule of law” and “regulatory efficiency” have positive effects. These findings indicate that in countries with more liberal laws and stronger adherence to them, tax systems function more efficiently. Results from the second model suggest a negative relationship between oil rent and institutional quality. In contrast, GDP per capita and tax revenue exhibit a positive relationship with economic freedom, implying that stable access to financial resources enhances institutional development.
Aim and Introduction
Taxes represent a vital and stable revenue source for governments, playing an undeniable role in financing the public sector. This study employs two separate models to investigate the interaction between institutional quality and tax performance in 10 oil-rich countries from 2011 to 2021. The first model assesses the effect of institutional quality on tax revenue by including four sub-indices of economic freedom—rule of law, government size, open markets, and regulatory efficiency—alongside two economic variables: GDP per capita and the agriculture-to-industry share in GDP.
In the second model, three independent variables—tax ratio, GDP per capita, and oil rent to GDP ratio—are analyzed to determine their effects on the index of economic freedom.
Methodology
The following model is used to examine the relationship between economic freedom and tax revenue:
Model 1:
Ltaxit=α0+α1Lgdp per capitait+α2L(agricultureindustry)it+α3L rule of lawit+α4L government sizeit+α5L open marketsit+α6L regularity efficiencyit+εit
To assess the relationship between oil rent, tax ratio, and economic freedom as a proxy for institutional quality, the following model is applied:
Model 2:
L economic freedomit=β0+β1L oil rentit+β2Ltaxit+β3Lgdp per capitait+uit
where L stands for logarithm, u and ε indicate the error terms, i indexes the cross-sectional units, and t denotes time.
To avoid spurious regression, all variables were tested for stationarity. Cross-sectional dependence was assessed using Pesaran’s (2015) test, which confirmed dependence among units. Given this, the Pesaran (2003) unit root test was deemed appropriate. The test revealed that some variables are non-stationary at the level, suggesting potential spurious relationships. Therefore, the Kao test was employed to verify the existence of long-term relationships among the variables, which the results confirmed. Estimation and interpretation of the models followed accordingly.
Results and Discussion
Model estimation was conducted using EViews 13. The F-Limer test indicated the appropriateness of the panel data method for both models. Based on the Hausman test results, the first model was estimated using fixed effects, while the second model employed random effects. Given the use of GLS estimation, checks for autocorrelation and heteroskedasticity were deemed unnecessary.
Model 1 results indicate that GDP per capita, rule of law, and regularity efficiency have significant positive effects on the tax ratio. Conversely, the agriculture-to-industry share in GDP, government size, and open markets have negative and significant effects.
Model 2 results show that oil rent negatively affects economic freedom, while GDP per capita and tax ratio exert positive effects. These findings imply that increased oil rents in these countries are associated with declining economic freedom. In contrast, greater tax revenues and higher GDP per capita—indicative of broader and more stable financial access—enhance institutional quality through improved government effectiveness and political stability.
Conclusion
The findings demonstrate that GDP per capita (elasticity = 0.8), regulatory efficiency (elasticity = 0.37), and rule of law (elasticity = 0.21) have the strongest positive effects on the tax revenue ratio in the sample countries. Rising per capita income boosts tax revenue by increasing citizens’ ability to pay taxes. Moreover, improvements in regulatory efficiency and adherence to the rule of law contribute to a more effective tax system.
The agriculture-to-industry GDP share, government size, and open markets negatively affect tax revenue. A high share of agriculture signals a lower degree of industrialization and, hence, a smaller taxable surplus. The unexpected negative relationship between tax ratio and market openness may stem from the nature of oil exports in these countries, which are typically managed by state-owned enterprises, reducing the feasibility of high taxation on such exports.
The negative relationship between government size and tax revenue reflects the reliance of oil-rich countries on resource-based revenues rather than tax revenues. A large public sector may also disincentivize private economic activity, leading to reduced tax collection and weaker tax performance.
The second model reveals that all independent variables significantly impact economic freedom. Specifically, oil rent exerts a negative effect, while tax revenue and GDP per capita positively influence institutional quality. Higher financial capacity enhances political and institutional development, improving indices such as government effectiveness and regulatory quality.
Given the influence of tax revenue and oil rents on economic freedom, policy efforts to enhance institutional quality should focus on improving tax systems and managing natural resource revenues more effectively. Alongside traditional fiscal tools like adjusting tax rates and bases, strengthening institutional frameworks, and promoting a stable economic, political, and social environment are essential strategies
کلیدواژهها English
