GDP and Tax Revenues-Causality Relationship in Developing Countries: Evidence from Palestine

Abstract

The study aims to investigate the causality relationship between Gross Domestic Product and its components with Tax revenues in developing countries as a case study in Palestine. This study based on an empirical approach using secondary data from Palestine monetary Authority during (1999-2014). The findings exposed mainly that the tax revenues does not Granger Cause each of the Palestinian Gross Domestic Product, Government spending, Consumption, Investment and Balance of trade. In addition, researcher divided period of study into three stages according to changing in income tax act. Moreover, results shows that the impact of macro-economic variables on tax revenues and correlations between dependent and independent variables was changing from one stage to other. This paper concludes that the Palestinian authority should motivate investment conditions and improve the tax collection instruments and decrease the tax invasion. In addition, Palestinian government should rationalize the government consumption spending and increase the government expenditure for the development.