THE TAXING DIVIDES: EXPLORING THE NEXUS BETWEEN INCOME INEQUALITY, ECONOMIC GROWTH, AND TAXATION

Abstract

This paper investigates the impact of income inequality and economic growth on tax revenues within the context of six SAARC countries, using panel data from 1990 to 2021. By applying various econometric models, including Pooled Ordinary Least Squares (POLS), Fixed Effects (FE), Random Effects (RE), and Pooled Mean Group (PMG), the study evaluates the relationship between tax-to-GDP ratios and key variables like GDP, income inequality (GINI), economic freedom, and employment. Results from the Random Effects model indicate that income inequality negatively affects tax revenues, while GDP growth, economic freedom, and employment have positive and significant impacts. The PMG model further supports these findings, revealing long-term equilibrium relationships. This research contributes to understanding the economic determinants of tax buoyancy in developing countries, highlighting policy implications for balancing income redistribution and economic efficiency.