Tax revenue-economic growth relationship and the role of trade openness in developing countries

Abstract

This study investigates the impact of tax revenue on economic growth in the context of increasing trade openness in developing countries by using the data of 29 developing countries with accelerating economic growth during the period 2000–2020. This study further applies the Fixed Effect Model (FEM) and the Generalized Least Squares (GLS) estimation methods for panel data to test the proposed hypotheses. The research results show that tax revenue positively affects economic growth in general. Furthermore, we find that trade openness increases the positive relationship between tax revenue and economic growth but excessive trade openness reduces such a relationship. Our findings provide important implications for developing countries in the context of increasing tax revenue and trade openness.