Tax Revenue, Stock Market and Economic Growth of Pakistan

Muhammad Irfan Javaid Attari (), Roshaiza Taha () and Muhammad Imran Farooq ()
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Muhammad Irfan Javaid Attari: Research Scholar, Faculty of Management Sciences, Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), Pakistan
Roshaiza Taha: Faculty of Business and Economics, University of Malaysia Terengganu, Malaysia
Muhammad Imran Farooq: Research Scholar, Department of Management Sciences, Iqra University, Pakistan

Acta Universitatis Danubius. OEconomica, 2014, issue 5(5), 136-148

Abstract: The purpose of this paper is to examine the effects of capital market and fiscal policy influences in determining the nexus of economic growth in Pakistan from July 2003 to July 2012. The authors utilize ADF unit root test, Johansen Cointegration test, VECM test, Granger causality test and variance decomposition analysis to test the relationship among tax revenue, stock market and economic growth in Pakistan. Granger causality analysis is used to answer questions whether “Does tax revenue cause the economic growth?” or “Does tax revenue cause the capital market?”. The results demonstrate that there is a bidirectional casualty between tax revenue and economic growth; and a unidirectional causality from capital market to tax revenue. The estimated result shows that growth of Pakistan economy is strongly contributed from the high collection of direct tax revenue and the development of financial market activity. The findings of this paper have important implications to current and potential investors in Pakistan economy to understand the economic condition of Pakistan and to assist them in making their investment decision.

Keywords: tax revenue; stock market; economic growth; Pakistan. (search for similar items in EconPapers)
Date: 2014
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