Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Tax Revenue and Financial Development in Emerging Markets

Author(s): Kunofiwa Tsaurai

The paper investigated the impact of tax revenue on financial development and the effect of the complementarity between tax revenue and foreign direct investment (FDI) on financial development in emerging markets. The study used the non-linear dynamic generalized methods of moments (GMM) approach with panel data ranging from 2001 to 2017. Across all the seven models used, it was established that financial development was significantly and positively influenced by its own lag. Moreover, tax revenue was found to have had either a significant or non-significant impact on financial development whilst the impact of FDI on financial development was found to be sensitive to the type of financial development proxy used. The impact of the complementarity of tax revenue and FDI on financial development was found to be significant and positive in emerging markets. Emerging markets are therefore urged to implement policies that are geared towards more tax revenue collection enhancement programmes to deepen financial development. They are also recommended to simultaneously implement these policies alongside FDI inflow attraction programmes if they intend to enhance the development of their financial sector.
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