Analyzing the Asymmetric Impact of Taxation on Economic Growth: A Case Study of Vietnam

Abstract

Tax revenue can serve as a potential source to control fiscal deficit, but it may also hinder economic growth. Thus, our study is driven by the nonlinear effects between taxation and growth. The literature often overlooks emerging and developing economies, particularly transitional ones. This study investigates the asymmetric impact of taxes on Vietnam’s economic growth using time series data from 1990 to 2020, employing the NARDL framework. The results reveal that changes in tax rates can have asymmetric effects on production in the long run, and increasing tax collection rates will negatively impact economic growth. Specifically, a 1% increase in taxes leads to a 2.518% decrease in economic activity, whereas a 1% reduction in taxes results in a 0.714% increase in economic activity. These findings are significant for the quantitative analysis of taxation through fiscal policies in typical emerging economies.