The Impact of Tax Revenue on Economic Growth in Somalia

Abstract

The study used a simple endogenous growth model to analyze the impact of tax revenue on economic growth in Somalia. The study used a classical linear regression model based on the OLS estimation method to establish the nature and strength of relationship between taxation and economic growth. Pre-estimation tests were carried out to determine heteroskasdicity, correlation, multicollinearity and normality of the variables. The results revealed overall significance of the explanatory variables in explaining GDP. In view of these findings, the coefficient of determination showed that 49.3 percent of the variation in GDP is explained by income and corporate taxes, international trade taxes and domestic indirect taxes. The findings further revealed that the coefficient of domestic indirect taxes was negative and influencing the economic growth in Somalia. The implications of this is that policy makers should focus more on income and corporate taxes and international trade taxes so as to generate more revenue by improving the tax collection system, eliminating fraud, evasion and corruption

Keywords: Tax revenue, GDP, evasion and corruption

DOI: 10.7176/JESD/13-2-07

Publication date: January 31^st 2022