Impact of economic and financial factors on tax revenue: Evidence from the Middle East countries

Abstract

This paper examines the impact of economic and financial factors on tax revenue of Bahrain and Oman from 1990 to 2010. For this purpose, panel regression analysis is performed by considering economic and financial factors including growth domestic product (GDP), Deposit Interest Rate, Lending Interest Rate, Interest Rate Spread, Real Interest Rate, Bank Capital to Asset Ratio, Bank nonperforming loans to total gross loans, Risk premium on lending, Foreign direct investment net inflow and Cash surplus deficit. A conceptual model is developed for this purpose and the key findings are explained. The outcomes of the study explain that there was a significant relationship between Tax revenue and both economic and financial factors i.e. GDP growth, Bank capital to asset ratio, the Risk premium on lending, Foreign direct investment net inflow and Cash surplus/deficit over the period of study. The findings of the study are very much useful for the policymakers to consider which factors are affecting the tax revenues and in which direction. However, the findings of the study can be more meaningful with the addition of more economic and financial factors as well. Besides, the consideration of other Asian states will provide more evidence for the generalization of the findings. Meanwhile, this study will be a policy note on on-going tax reforms in selected Middle East countries and will be helpful for policymakers and researchers in conceptualizing the tax revenue model for them.

Keywords

• Middle East Countries
• Bahrain
• Oman
• Economic Factors
• Financial Factors
• Tax revenue and GDP growth