The impact of financial inclusion on tax revenue in EMEA countries: A threshold regression approach

Abstract

Many countries are still struggling to increase the collection of domestic revenue. Financial inclusion has the potential to raise massive income in any country. As people become more financially integrated and their income rises over time, their tax payments to the government may rise as well. Thus, using a wide dataset of 45 countries in Europe, the Middle East, and Africa from 2008 to 2019, this paper employs a panel threshold regression model to address the key issue of whether changes in tax revenue are linked to changes in financial inclusion. We use a generalized method of moments model to test the robustness of the results. The main findings show a nonlinear relationship between financial inclusion and tax revenue, which indicates that, at low levels, financial inclusion has a negative impact on tax collection, whereas, at the high level, financial inclusion has a positive and significant impact on tax revenue.

Keywords

• G20
• H20
• O16