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Personal Income Tax and Economic Growth: A Comparative Study Between China and Pakistan

Azka Amin, Yan Chen and Shaoan Huang
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Azka Amin: The Center for Economic Research, Shandong University, Jinan, P.R China
Yan Chen: The Center for Economic Research, Shandong University, Jinan, P.R China
Shaoan Huang: The Center for Economic Research, Shandong University, Jinan, P.R China

Asian Journal of Economic Modelling, 2018, vol. 6, issue 1, 65-73

Abstract: The present study explores the relationship between personal income tax and economic growth in China and Pakistan. For empirical analysis, bivariate and multivariate Granger causality frameworks have been utilized. The results do not support bivariate framework because it omit main variables. Then four important additional variables were introduced in multivariate framework to capture the country specific effect. The results under multivariate framework conclude there exist long-run positive unidirectional causality from personal income tax to real gross domestic product per capita (RGDPPC). The results showed that personal income tax, trade openness, inflation has positive while dependency ratio and agriculture has negative relation with economic growth for Pakistan while for China personal income tax, trade openness and agriculture sector has positive while inflation and dependency ratio shows negative relationship. Speed of adjustment predicts that system will move to equilibrium rapidly while diagnostic tests approve the perfectness of the model.

Keywords: Personal income tax; Economic growth; Comparison china & Pakistan; Bivariate & multivariate; Causality; Diagnostic tests (search for similar items in EconPapers)
JEL-codes: E26 H24 H27 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:asi:ajemod:2018:p:65-73