Are Some Taxes Better for Growth in Pakistan?A Time Series Analysis

This study analyzed the impact of taxes on economic growth of Pakistan for the period 1976 to 2014. The study has disaggregated taxes into direct and indirect tax. Indirect tax has further disaggregated into five categories (excise duty, sales tax, surcharges, tax on international trade and other taxes). By applying autoregressive distributive lag framework, study confirmed the existence of long run relationship between taxes and real GDP of Pakistan. Results indicate that in the long run direct tax, taxes on international trade, sales tax and other indirect taxes has positive and significant impact on real GDP. However, in the short run sales tax, tax on international trade and other tax have positive relationship, while excise duty has negative relation with real GDP of Pakistan. The results confirmed that direct tax, sales tax and tax on international trade are pro-growth taxes. Government should increase direct taxes as they have positive and significant impact on economic growth in the long run