The impact of Tax Evasion on Economic Growth of Afghanistan: An Empirical Evaluation

Rahmatullah Jamalzai, Muhammad Mirwais Rasa and Irfan Ul Haq

MPRA Paper from University Library of Munich, Germany

Abstract: This study examines the impact of tax evasion on Afghanistan's economic growth using an empirical approach. Tax evasion undermines public revenue, impedes state capacity, and distorts resource allocation — challenges that are particularly acute in fragile, post-conflict economies like Afghanistan. Utilising time-series data spanning 2005-2021, the study employs [e.g., Ordinary Least Squares (OLS) and Autoregressive Distributed Lag (ARDL)] to evaluate the relationship between estimated levels of tax evasion and key macroeconomic indicators, including GDP growth, government expenditure, inflation, and foreign direct investment. The findings reveal a statistically significant and negative relationship between tax evasion and economic growth, underscoring the detrimental effects of a weak tax compliance culture. The results highlight the urgent need for comprehensive tax reforms, strengthened institutional capacity, and enhanced enforcement mechanisms to curb tax evasion and stimulate sustainable economic development in Afghanistan. Policy implications and recommendations for future research are also discussed.

Keywords: Economic Growth; Afghanistan; Tax Evasion; Tax Compliance; Revenue base (search for similar items in EconPapers)
JEL-codes: F1 F13 F17 F18 G3 G38 (search for similar items in EconPapers)
Date: 2024-12-07, Revised 2025-03-13
New Economics Papers: this item is included in nep-iue
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