The Effect of Tax Revenue on Unemployment and Income in Developing Countries

Abstract

The need for developing countries to create the enabling environment for rapid economic development put them in situation where they have to ensure that more households and firms are inclusive in their tax net. There have been a growing debate among researchers on the effect of tax on unemployment and income in the emerging and developed economies. While the findings from such studies showed positive, inverse relationships or their mix among these variables in the developed economies, the experience of developing countries with regard to tax revenue, unemployment and income is yet to be examined. This study aims to fill this vacuum in the literature. The study made use of the fully modified ordinary least squares technique to evaluate this relationship. The findings indicated that there was decreasing relationships between tax revenue and unemployment while, in the case of income, this was indeterminable, given its insignificantly positive estimate in developing countries.