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Examining the Impact of Tax Evasion and Tax Revenue on Economic Growth of Afghanistan: An Empirical Investigation

Mr. Rahmatullah Jamalzai

Volume 4 Issue 4 | Dec 2021

DOI: 10.31841/KJEMS.2021.106

Views: 516

Total Downloads: 34

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Abstract

The level of taxation is imperative for the development of a country, but from the last decade, countries have failed to collect taxes up to the maximum because of evading and avoiding the nature of taxpayers. As such tax evasion is connoted as a serious problem that causes governments of different nations to lose revenues at various levels. The issue of tax evasion has received considerable attention from researchers and policy-making institutions over the past decades. Various studies have been conducted on tax evasion and its effects on income inequality and economic growth. The main purpose of this study is to examine the effect of tax evasion and tax revenues on economic growth. For this reason, Afghanistan is taken as a critical case covering the data from 2010-2020 by using the OLS approach to estimate the results. In the first step, using the monetary approach, an index for tax evasion for Afghanistan is estimated. In the second step, the effects of tax evasion and tax revenues on economic growth are studied. The results show that tax evasion and income tax rate have a U shape relationship. That is, as the tax rate increase the probability of tax evasion would also increase. Furthermore, it is found that tax evasion leads to economic instability, and more tax revenues will be beneficial for better economic conditions.

JEL Classification Codes: C22, E01, H21, H26, H27‎

‎Keywords: Afghanistan, Tax evasion, Tax revenue, Economic growth