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Revue "Repères et Perspectives Economiques"

Vol. 3/N° 2 / 2ème semestre 2019

Tax revenue and economic growth in Morocco:


Application of ARDL approach

Othmane Fahim and Youssef Bourdane


Mohammed V University, Rabat, Morocco

Édition électronique
URL : https://revues.imist.ma/index.php?journal=rpe&page=article&op=view&path%5B%5D=16891

ISSN : 2509-0399
Date de mise en ligne : 01 juillet 2019
Pagination : 137-154

Référence électronique
Fahim, O. et Bourdane, Y. «Tax revenue and economic growth in Morocco :
Application of ARDL approach», Revue "Repères et Perspectives Economiques" [En
ligne], Vol.3, N° 2 / 2ème semestre 2019, mis en ligne le 01 juillet 2019.
URL: https://revues.imist.ma/index.php?journal=rpe&page=article&op=view&path%5B%5D=16891
Tax revenue and economic growth in Morocco: Application of ARDL approach

Abstract

The objective of this article is to study the impact of taxation on Moroccan economic
growth, based on an ARDL model, on time series from 1981 to 2017. The main results
show that in the short term, direct and indirect taxation have a negative effect on
economic growth. In the long term, direct taxation has a positive effect and indirect
taxation remains negative. In the short term, the investment variable has an instant
negative impact on growth. However, over time, its effects become positive. For
openness, it has a positive impact on growth. In the long term, investment has a
negative and significant effect and openness has a positive and not a significant impact
on economic growth.

Keywords: Tax revenue, Economic growth, ARDL, Morocco

JEL Classification : E52, E63, E58

Résumé

L’objectif de cet article est d’étudier l’impact de la fiscalité sur la croissance


économique du Maroc, à partir d’un modèle ARDL, sur des séries chronologiques
allant de 1981 à 2017. Les principaux résultats montrent, qu'à court terme, les
taxations directe et indirecte ont un effet négatif sur la croissance économique. A long
terme, la taxation direct a un effet positif et la taxation indirecte demeure négative. A
court terme, la variable d’investissement a un impact instantané négatif sur la
croissance. Cependant, avec le temps, ses effets deviennent positifs. Pour l’ouverture,
celle-ci a un impact positif sur la croissance. Sur le long terme, l'investissement a un
effet négatif et significatif et l’ouverture impact positivement et non significativement
la croissance économique.

Mots-clés : Recettes fiscales, Croissance économique, ARDL, Maroc

Classification JEL : E52, E63, E58

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Tax revenue and economic growth in Morocco: Application of ARDL approach

1. Introduction

The search for an optimal tax rate where tax revenue are maximized for social welfare
and economic growth has been the essence of the various theories. Adam Smith saw
taxation as a way to support government. In its catalytic role, taxation serves to
increase the value of effective demand, stimulate investment and promote economic
development. There are a number of theories that underline the concept of taxation,
including the decentralization theorem that deals with the distribution of public sector
functions and finances between different levels of government (Ozo-Eson, 2005).

Tax reforms and their effects on economic activity have generated a major debate on
public policy in recent years. Decision-makers and academics have been more
interested in the relationship between the tax structure and economic growth, which is
extremely difficult to understand (Gale & al. Samwick, 2014).

Many studies have used endogenous growth models to examine the economic effects
of tax composition (Barro, 1991; Jones & al., 1993). According to these models, fiscal
policy, tax and government expenditure measures are the most important endogenous
variables that can help analyse how fiscal policy affects long-term growth (Barro &
Sala-I-Martin, 1992). Contrary to this view, neoclassical growth theory shows that the
main drivers of long-term growth are capital accumulation and labour.

A number of studies have been conducted for various countries to determine the
existence of a long-term relationship between economic growth and taxation, by using
a variety of data, methodologies and study periods. Most of these have highlighted a
negative relationship between economic growth and taxation. This can be explained by
the fact that income tax has an impact on work incentives and will therefore have a
negative impact on productivity.

In addition, the results seem mixed on the impact of taxes and spending on economic
growth. The empirical studies have raised a series of questions that need to be taken
into account, but have not provided any definitive answers. After several years of
economic reforms, the relationship between the tax structure and economic growth in
Morocco remains unfavourable to growth support. As a result, the relationship
between tax revenue and economic growth is not yet sufficiently understood by
decision-makers.

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Tax revenue and economic growth in Morocco: Application of ARDL approach

The objective of this article is to study the impact of tax revenue on Moroccan
economic growth. In the second section, we discuss the tax structure in the economy.
In the third section, we provide a brief overview of the literature review. In section 4,
we present the data, the model and the methodology. In section 5, we discuss the main
results of our estimates and conclude.

2. Evolution of the tax structure in Morocco

In recent years, Morocco has experienced many reforms and an increase in tax
revenue. The evolution of total tax revenue in Morocco during the period from 1980 to
2017 shows a relatively moderate increase in the tax burden (direct and indirect) in the
1980s, from 10.5% in 1980 to 12.9% in 1990, and an average of 18.8% in the 1990s. It
continued to increase until reaching 25.9% in 2008, with a slight decrease from 2012
to 2017 (23.4% and 21.2% respectively).

Graph 1. Evolution of the tax burden rate & economic growth in Morocco (1980-2017)

30,00
25,00
20,00
15,00
10,00
5,00
0,00
-5,00
-10,00

Tax burden (%GDP) GDP growth (annual %) Non agricultural GDP (annual%)

Source: Authors’ compilations, based on MoF & HPC data


In Morocco, indirect taxes overweigh, mainly due to the importance of the informal
economy in the structure of GDP, tax evasion and avoidance, low tax rates and lack of
control. These deficiencies hinder the increase in income-based direct tax resources,
and push the State to focus strongly on indirect taxation, and thus demonstrate its
inability to use direct taxation as a tool for economic growth.

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Tax revenue and economic growth in Morocco: Application of ARDL approach

Graph 2. Evolution of the direct and indirect taxes (% of GDP) in Morocco

12

10

Direct tax (%GDP) Indirect tax (%GDP)

Source: Authors’ compilations, based on MoF & HPC data

As in many countries, the tax revenue structure shows a significant increase in its main
components, in particular the share of value added tax (VAT) compared to income tax
(IR) and, to a lesser extent, corporate tax (CT). However, there is one year of
disruption, 2009. There was a decline in tax revenues from the same year, which saw a
reduction in corporate income tax and corporate income tax rates, and a decline in the
rate of increase in customs duties and import VAT, compared to 2008 and previous
years. In addition, we are witnessing since 2010 to a downward trend in the
performance of these components, which increased to lower rates than those observed
in years prior to 2009.

At the same time, economic growth in Morocco has fluctuated widely over the same
period, as evidenced by the ups and downs in annual GDP growth rates. The volatile
growth experienced by Morocco during the period 1980-2011 was linked to a
concentration of production in certain sectors, particularly raw materials and
agriculture, which were highly dependent on climatic hazards and fluctuations on
world markets.

Moreover, during the 2000s, this volatility decreased, except during 2008-2009, when
its acceleration was interrupted by the 2007 financial crisis. In the context of
monitoring the interaction between changes in tax revenues and changes in GDP, it
can be seen that in the case of Morocco, the evolution of tax revenues is proportional
to that of the country's economic growth.

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Tax revenue and economic growth in Morocco: Application of ARDL approach

Nevertheless, we can note that there is a low elasticity of tax revenues in relation to
GDP, which reflects a low degree of tax reaction in relation to the economic context.

3. Literature review

Many studies have examined the impact of taxation on economic growth, since the
issue of taxation and economic growth is at the heart of macroeconomic policies. This
section discusses the main properties of selected empirical studies that examine the
relationship between economic growth and tax revenues:

Romer (1986) points out that public spending and tax policy have a positive effect on
long-term growth. The results of his study show that the exogenous increase in taxes,
the reduction of the budget deficit and the reduction of growth, as well as the rate high
income tax refusals, are persistent factors of economic growth.

Lee & Gordon (2005) sought to determine the role of corporate tax rates, personal
income tax and consumption tax on goods and services on economic growth in 70
countries during the period 1970-1997. The purpose of their study was to investigate
the extra-financial impact on GDP per capita growth by using a set of cross-sectional
country data. Estimates indicate that the rate of corporate taxation leads to a decline in
future growth rates within countries. Estimates of the coefficient suggest that a 10
percentage point reduction in the tax rate on companies will increase the annual
growth rate by one to two percentage points.

Arisoy & Unlukaplan (2010) studied the effect of tax composition on growth
economic. By applying the Feeder model and using serial data chronological, from
1968 to 2006 in the case of Turkey, they note that there is a positive and significant
correlation between indirect taxes and economic growth. They are finally concluding
that the share of indirect taxes should be higher than that of direct taxes, if economic
growth is expected to increase.

Mashkoor & al. (2010) examined the relationship between tax revenues and economic
growth, in the case of the Pakistani economy by taking annual data, from 1973 in 2008
and apply an ARDL model. They analyse the relationship between total tax revenues,
direct taxes, gross home savings and the pace of economic growth.

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Tax revenue and economic growth in Morocco: Application of ARDL approach

Their results show that the ratio of direct taxation to GDP has increased considerably
motivated real GDP growth and that a high level of direct emissions would increase
the real economic growth.

In a study, Saima & al (2014) used Johansen's cointegration tests to estimate data from
Pakistan from 1973 to 2010 to analyse the relationship between tax revenues and
growth. They found that high taxes in Pakistan have negative effects on consumption,
investment and, consequently, GDP growth.

Srithongrung & Kriz (2014) explored the effects of taxes and expenditures on sub-
national government revenue growth using the VAR model to eliminate the effect
endogenous problems associated with fiscal policy and growth. They found that that
taxes have had a negative impact on growth in the short term, while capital and
operating expenditures had positive to medium effects term.

Ojong, Anthony & Arikpo (2016) studied the impact of tax revenues on growth
economic in Nigeria between 1986 and 2010 using the ordinary least squares model.
The results of their model reveal a non-significant relationship between tax revenues
and economic growth.

Babatunde, Ibukun & Oyeyemi (2017) conducted a study to examine the relationship
between taxation and economic growth in Africa between 2004 and 2013. The
descriptive statistics and unit root tests showed that the GDP and tax revenue variables
were normal and stationary. However, the results of this study indicate that tax
revenues have a positive and significant impact on GDP and thus promote economic
growth in Africa.

Shayan & al. (2017) analysed the effects of tax revenues on Iran's economic growth
over the period 1973-2013 in using the EGARCH-ARDL method. The results suggest
that tax revenue volatility does not have a significant impact on growth, but that tax
revenues themselves have a significant effect on long-term growth but not in the short
term.

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Tax revenue and economic growth in Morocco: Application of ARDL approach

4. Data, Model & Methodology


4.1. Data

The data included in our study are annual and come from the Ministry of Economy
and Finance (MEF) database, the High Planning Commission (HPC) and World
Development Indicators (WDI). They cover the period 1981 to 2017. The following
table shows the variables used:

Table 1. Description of the variables

Variables Description Source


NaGDP Non-agricultural Gross Domestic Product (at current prices) HPC
TAX Tax burden (% of GDP) MEF
DT Direct Tax (% of GDP) MEF
IT Indirect Tax (% of GDP) MEF
INV Gross formation capital (% ) WDI
OPN Trade (% of GDP) WDI
Graph 3. Relationship between Non-Agricultural GDP and taxation

Reading the graph above, the impact of taxation on economic growth in Morocco
seems positive. This preliminary observation respects theoretical intuitions. This is the
case for the other explanatory variables whose impact on growth is clearly positive
(graph 4).

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Tax revenue and economic growth in Morocco: Application of ARDL approach

Graph 4. Relationship between Non-Agricultural GDP and the other variables

4.2. Specification & Methodology

To examine whether taxation has an effect on economic growth in Morocco, and


therefore infer that it is an engine of growth, we will estimate an autoregressive
distributed-lagged model (ARDL).

This model makes it possible to capture temporal effects in the explanation of a


variable. As part of our work, we try to determine the impact on economic growth
(NaGDP) of taxation (TAX), taking into account other control variables whose
influence improves results: investment (INV) and openness rate (OPN).

In our study, since the agricultural sector remains exempt or outside the scope of
application, we considered it appropriate to take into account, at the modelling level,
the GDP excluding agriculture. We also seek to capture the effects of the main
components of taxation (direct and indirect taxes) on non-agricultural GDP growth
(dependent variable), taking into account other essential control variables whose
influence improves results. These variables are commonly used in the work studying
the relationship between taxation and growth presented in the literature review.
Therefore, we plan to estimate an ARDL model for the following function:

𝑵𝒂𝑮𝑫𝑷 = 𝒇(𝑻𝑨𝑿, 𝑰𝑵𝑽, 𝑶𝑷𝑵) (1)

If we propose to capture the short and long-term impact of the above explanatory
variables on growth, the structure of the ARDL model of our function will be specified
as follows:

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Tax revenue and economic growth in Morocco: Application of ARDL approach

𝑝 𝑞 𝑞 𝑞
Δ𝑁𝑎𝑔𝑑𝑝𝑡 = 𝛼0 + ∑𝑖=1 𝛼1𝑖 Δ𝑁𝑎𝑔𝑑𝑝𝑡−𝑖 + ∑𝑖=0 𝛼2𝑖 Δ𝑑𝑡𝑡−𝑖 + ∑𝑖=0 𝛼3𝑖 Δ𝑖𝑡𝑡−𝑖 + ∑𝑖=0 𝛼4𝑖 Δ𝑖𝑛𝑣𝑡−𝑖 +

∑𝑞𝑖=0 𝛼5𝑖 Δ𝑜𝑝𝑛𝑡−𝑖 + 𝛽1 𝑔𝑑𝑝𝑡−𝑖 + 𝛽2 𝑑𝑡𝑡−𝑖 + 𝛽3 𝑖𝑡𝑡−𝑖 + 𝛽4 𝑖𝑛𝑣𝑡−𝑖 + 𝛽5 𝑜𝑝𝑛𝑡−𝑖 + 𝑒𝑡 (2)

With

Δ : Frist difference operator; 𝛼0 : Constant; 𝛼1 … 𝛼4 : Short-term effects; 𝛽1 … 𝛽4 :


Long-term dynamics of model; 𝑒 ~ 𝑖𝑖𝑑(0, 𝜎) : Error term (white noise)

In order to determine the optimal offsets (p, q) of our model, we will use the
information criteria of Akaike-AIC, Schwarz-SIC and Hannan-Quin. The structure of
equation (2) suggests the presence of a cointegration relationship between the
variables conditioning the estimation of short and long-term coefficients.

5. Estimations & Results


5.1. Stationarity Test

Many tests can help to determine whether a series is stationary or not: Augmented
Dickey-Fuller test, Philippe-Perron test, Andrews & Zivot test, NgPerron test, KPSS,
Ouliaris-Park-Perron, Eliott-Rothenberg-Stock, etc. Among them, the three are easy to
apply and commonly used. In fact, the ADF test is effective in in the case of
autocorrelation of errors, the PP test is adapted in the presence of heteroscedasticity,
and the AZ test is used for a series that experiences a structural failure or regime
change identified endogenously. Thus, we use the ADF test (Table 2):

Table 2. Stationarity tests of the series

Level First Difference


Variables Observation Value Probability Value Probability
LNagdp I(1) -2.85 0.1899 -3.84*** 0.0255
Ldt I(1) -2.49 0.3273 -6.53*** 0.0000
Lit I(1) -2.88 0.1793 -7.78*** 0.0000
Linv I(1) -2.87 0.1809 -5.14*** 0.0010
Lopn I(1) -2.56 0.2974 -7.17*** 0.0000
Source: Author’s estimates
*, **, and *** denote significant at 10%, 5%, and 1% levels, respectively.
The series are thus integrated in the same order. Through the literature, several
cointegration tests can be listed, mainly those of Engel & Granger (1987), Johansen
(1991) and Pesaran & al. (2001). Thus, we will use the cointegration test of Pesaran &
al. (2001) for our study.

5.2. Cointegration Test

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Tax revenue and economic growth in Morocco: Application of ARDL approach

We will use the Schwarz Information Criterion (SIC) to select the optimal ARDL
model, the one that offers statistically significant results with the least of the
parameters. Below are the results of the estimation of the optimal ARDL model used:

Table 3. ARDL model (1, 4, 0, 4, 1)


Dependent Variable: DLNagdp
Variables Coefficient Std. Err. t-Statistic Prob. *
DLNAGDP(-1) 0.3921 0.1906 2.0566 0.0554
DLDT 0.1565 0.0490 3.1913 0.0053
DLDT(-1) 0.0626 0.0634 0.9864 0.3378
DLDT(-2) 0.1930 0.0712 2.7095 0.0149
DLDT(-3) 0.1126 0.0565 1.9930 0.0626
DLDT(-4) 0.0943 0.0428 2.2013 0.0418
DLIT -0.0652 0.0588 -1.1087 0.2830
DLINV -0.2773 0.1011 -2.7412 0.0139
DLINV(-1) -0.3553 0.1225 -2.8991 0.0100
DLINV(-2) -0.1062 0.0983 -1.0801 0.2952
DLINV(-3) -0.1930 0.0850 -2.2691 0.0366
DLINV(-4) -0.1358 0.0670 -2.0263 0.0587
DLOPN 0.0735 0.0753 0.9758 0.3428
DLOPN(-1) 0.1378 0.0754 1.8270 0.0853
C 0.0247 0.0109 2.2521 0.0378
R-Square 0.7937 Durbin-Watson stat. 1.8571
Adjusted R-Square 0.6238
F-statistic 4.6727
Prob(F-statistic) 0.0277
Source: Author’s estimates

In the light of the results obtained, the ARDL model (1, 4, 0, 4, 1) is the most optimal
by the 19 others presented (graph 5). In addition, the following tests show, first of all,
that there is no autocorrelation of errors and heteroscedasticity, that errors are normal
and that the above model is well specified (Table 4).

Graph 5. Graphical values SIC

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Tax revenue and economic growth in Morocco: Application of ARDL approach

Akaike Information Criteria (top 20 models)


-5.00

-5.02

-5.04

-5.06

-5.08

-5.10

-5.12

-5.14
ARDL(1, 4, 0, 4, 1)
ARDL(1, 4, 0, 4, 2)
ARDL(1, 4, 0, 4, 4)
ARDL(1, 4, 1, 4, 1)
ARDL(1, 0, 0, 4, 4)
ARDL(1, 4, 2, 4, 1)
ARDL(1, 4, 0, 4, 3)
ARDL(1, 4, 1, 4, 2)
ARDL(1, 4, 2, 4, 2)
ARDL(1, 4, 2, 3, 1)
ARDL(1, 4, 1, 4, 4)
ARDL(1, 4, 2, 4, 4)
ARDL(1, 4, 3, 3, 1)
ARDL(1, 3, 0, 4, 4)
ARDL(1, 1, 0, 4, 4)
ARDL(1, 2, 0, 4, 4)
ARDL(1, 2, 0, 1, 0)
ARDL(1, 2, 0, 1, 1)
ARDL(1, 4, 0, 4, 0)
ARDL(1, 0, 1, 4, 4)
Table 4. Diagnostic tests of ARDL model

Test hypothesis Test Value Probability


Autocorrelation Breusch-Godfrey 0,12 0,88
Heteroscedasticity Breusch-Pagan-Godfrey 0,70 0,74
Arch-test 1.78 0.19
Normality Jarque-Bera 0.35 0.83
Specification Ramsey (Fisher) 1.01 0.32

The null hypothesis is accepted for all these tests. Our model is thus statistically
validated. The estimated ARDL model (1, 4, 0, 4, 1) is generally good and explains at
62% the dynamics of Non-agricultural GDP in Morocco, from 1981 to 2017. After
estimating the ARDL model, the Fisher F statistic is compared with the critical values
(Table 5):

Table 5. Cointegration Test of Pesaran & al. (2001)

Variables DLNagdp, dldt, dlit, dlinv, dlopn


Calculated F- 3.65
stat
Critical value Lower bound Upper bound
10% 2.45 3.52
5% 2.86 4.01
1% 3.74 5.06

The results of the cointegration test confirm the existence of a cointegration


relationship between the series under study (the value of F-stat is > to that of the upper
bound: at the 10% threshold), which gives the possibility to estimate the long-term

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Tax revenue and economic growth in Morocco: Application of ARDL approach

effects of ldt, lit, linv and lopn on LNagdp. First of all, we try to take a look at the
correlation and causality between variables.

5.3. Correlation and causality

The table below provides information on the relationship between the dependent
variable (NaGDP) and the independent variables, with the degree of association
exceeding 0.50 in the first column, with the exception of investment. The causality test
will reveal more.

Table 6. Simple correlation matrix between variables

LNAGDP LDT LIT LINV LOPN


LNAGDP 1 0.9328 0.6732 0.4588 0.7488
LDT 0.9328 1 0.7162 0.6720 0.8357
LIT 0.6732 0.7162 1 0.6465 0.7977
LINV 0.4588 0.6720 0.6465 1 0.8249
LOPN 0.7488 0.8357 0.7977 0.8249 1

The causality test in the sense of Toda-Yamamoto (1995) is based on Wald's statistic
"W", which is distributed according to the Chi-square statistic. The null hypothesis
expresses the absence of causality between variables (probability > 5%).

Table 7. Causality Tests of Toda-Yamamoto

𝒌 𝒅𝒎𝒂𝒙 Dependent Explanatory or causal variables


Variables LNagdp LDT LIT LINV LOPN
LNagdp - 0.89 1.47 2.39 8.09**
(0.6404) (0.4778) (0.3020) (0.0175)
LDT 6.14** - 0.17 6.32** 0.44
2 1 (0.0463) (0.9180) (0.0423) (0.7988)
LIT 16.61*** 2.87 - 10.13*** 11.73***
(0.0002) (0.2381) (0.0063) (0.0028)
LINV 9.51*** 2.86 1.37 - 2.36
(0.0086) (0.2384) (0.5021) (0.3062)
LOPN 4.87* 2.41 1.89 3.53 -
(0.0872) (0.2994) (0.8876) (0.1704)
*, **, and *** denote significant at 10%, 5%, and 1% levels, respectively.

From the table above, we can deduce causalities, in the sense of Tado-Yamamoto. A
two-way causality between openness and growth: trade openness has an impact on the
dynamics of non-agricultural GDP, and the latter influences openness. With regard to
unidirectional causalities, the dynamics of non-agricultural GDP are caused by direct

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Tax revenue and economic growth in Morocco: Application of ARDL approach

and indirect taxation, investment and trade openness. Similarly, direct and indirect
taxes cause the dynamics on investments. And finally, indirect taxation also has an
impact on openness.

In Table 8, the adjustment coefficient or "restoring force" is statistically significant,


negative and is between 0 and 3 in absolute terms, which guarantees a mechanism for
error correction and hence the existence of a long-term relationship between variables.
In this way, taxation has a negative and non-significant effect on short-term economic
growth (a 1% increase in direct and indirect taxation accelerates growth by
respectively 0.01% and 0.06% of GDP). These effects are not reversed over time: the
impact of the tax policy of one to three years ago is a brake on economic growth in
Morocco. The economic agents supposed to have studied and put in place mechanisms
of tax fraud and evasion. In almost all endogenous growth models, indirect taxation
does not affect individual behaviour and therefore leaves growth unchanged. While
direct taxation is detrimental to growth.

Table 8. Results of estimation of short-term coefficients

Dependent variable : DLNagdp


Variables Coefficients t-stat Prob.
D(DLDT) -0.0111 -0.2263 0.8236
D(DLDT(-1)) -0.0058 -0.0822 0.9354
D(DLDT(-2)) -0.1126 -1.9930 0.0626
D(DLDT(-3)) -0.0943 -2.2013 0.0418
D(DLIT) -0.0652 -1.1087 0.2830
D(DLINV) -0.2773 -2.7412 0.0139
D(DLINV(-1)) 0.1062 1.0801 0.2952
D(DLINV(-2)) 0.1930 2.2691 0.0366
D(DLINV(-3)) 0.1358 2.0263 0.0587
D(DLOPN) 0.0735 0.9758 0.3428
CointEq(-1) -2.2311 -11.7024 0.0000
Source: Author’s estimates

Our results corroborate those of Marsden (1983), Easterly & Rebelo (1993), Kneller &
al. (1999) which indicate a negative correlation between the tax burden and economic
growth. As for the tax structure, these authors show that taxes generate distortions that
negatively affect growth.

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The growth of gross fixed capital formation didn’t show the expected effects in the
short term, acting as a brake on growth, except for the opening rate, whose
instantaneous effect on growth remains positive in the short term. However, the time
dimension should not be neglected here. Over time, the effects of the investment
become positive.

Table 9. Results of estimation of long-term coefficients

Dependent variable : DLNagdp


Variables Coefficient t-Statistic Prob.
DLDT 0.091044 1.011120 0.3261
DLIT -0.029253 -1.077033 0.2965
DLINV -0.478631 -3.652996 0.0020
DLOPN 0.094751 1.569020 0.1351
C 0.011073 2.708764 0.0149
Source: Author’s estimates

The table above shows that the effects of direct taxation on economic growth in
Morocco remain positive in the long term (an increase in direct tax of 1% of GDP
accelerates growth by 0.09%). In addition, the long-term effect of investment on
economic growth is negative and significant. However, as far as openness is
concerned, it has a positive and significant impact on growth.

6. Conclusion

In this work, we have tried to study the impact of taxation on Moroccan economic
growth. The econometric study was carried out using an ARDL model, based on
annual data from Morocco, during the period 1981-2017. This model allows a dynamic
analysis of the relationship between economic growth and taxation.

In the short term, direct and indirect taxation have a negative effect on economic
growth. While in the long term, direct taxation has a positive effect and indirect
taxation remains negative. For the short-term investment variable, it has an instant
negative impact on growth. However, the time dimension should not be neglected
here. Over time, the effects of the investment become positive. For openness, it has a
positive impact on economic growth. In the long term, the results show that investment

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Tax revenue and economic growth in Morocco: Application of ARDL approach

has a negative and significant effect and that openness has a positive and not a
significant impact on economic growth.

In view of these results, the question of the tax structure is of crucial importance in the
continuity of tax reforms in Morocco towards a more simplified and neutral tax
system. These reforms can contribute to improving economic performance by reducing
the tax burden on individual and corporate income. Another issue worth raising is the
control of the tax system and its constraints, namely the weight of the informal sector,
the low level of direct taxes, unequal taxation according to sectors and the various
exemptions.

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Tax revenue and economic growth in Morocco: Application of ARDL approach

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