The Nexus Between Tax Revenue, Economic Policy Uncertainty, and Economic Growth: Evidence from G7 Economies

Emre Sakar (), Mahmut Unsal Sasmaz and Ahmet Ozen
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Emre Sakar: Department of Public Finance, Faculty of Economics and Administrative Sciences, Usak University, Usak 64000, Türkiye
Mahmut Unsal Sasmaz: Department of Public Finance, Faculty of Economics and Administrative Sciences, Usak University, Usak 64000, Türkiye
Ahmet Ozen: Department of Public Finance, Faculty of Economics and Administrative Sciences, Dokuz Eylul University, Izmir 35390, Türkiye

Sustainability, 2025, vol. 17, issue 15, 1-34

Abstract: Economic policy uncertainty is an important macroeconomic risk factor that can have direct effects on investment decisions, growth dynamics, and public finance. In particular, its potential impact on tax revenue is critical in terms of fiscal sustainability. This study investigates the Granger-causal relationship between economic policy uncertainty, total tax revenue, and economic growth in G7 economies over the 1997–2021 period, applying symmetric and asymmetric panel causality tests. The empirical findings revealed evidence of causality between economic policy uncertainty and tax revenue and between economic growth and economic policy uncertainty. In asymmetric analyses where the effects of positive and negative shocks were separated, the direction of causal relationships differed between countries. These results imply that asymmetric effects vary by country. Overall, the empirical findings suggest that enhancing transparency and predictability in tax systems could play a vital role in reducing economic policy uncertainty and thus positively affect tax revenue performance and fiscal resilience.

Keywords: economic policy uncertainty; tax revenue; economic growth; asymmetric bootstrap Granger causality; panel data analysis; fiscal sustainability; G7 countries (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:17:y:2025:i:15:p:6780-:d:1709974

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