Role of Taxation in Formulation of Economic Policies, and its Impact on Economic Development. Case Study of Pakistan (2000-01 to 2009-10)

Abstract

Query for the taxation system has been raised many times in the past, and in the light of that research was carried out, to know/examine the interrelationship of governmental tax collections with development activities, non-development activities, and monetary assets available in the country. In order to check the relationship between above said three variables separately on a tax collection used as independent variable, simply linear regression was applied. In addition to that unemployment rate, health expenditure, exports, imports, consumer price index, and investments were used as economic development variables for checking their degree of association with some policy variables; namely (development expenditure, non-development expenditure, and monetary assets) by using linear regression again. After applying the regression it was observed that tax collected is positively and highly correlated with all of the three dependent (policy) variables and model is rightly predicting the changes, furthermore all six development variables were used as independent variables for predicting the development expenditure. It was found that model is fit ; unemployment rate, health & nutrition, CPI have negative and exports, imports and net investments have positive impact on development expenditure, same situation was repeated again with the non-development expenditure except unemployment rate, and exports all other four variables were positively associated with non-development expenditure, and same procedure repeated again with available monetary assets in the country where only CPI had negative, all other variables have positive association with the monetary assets. While looking at the results researcher concluded that everything is looking fine but only in papers, nothing is replicating in practice, which clearly states that policy flaws, administrative weaknesses are there which must be improved to improve the economic system, massive policy reforms, and administrative reforms are needed in creating interruption free taxation system and implementation of the policies accordingly (target oriented).