article · Complexity
Better governance in developing economies signals institutional stability, secure law and order, and reduced internal and external conflicts. An analysis of data from Pakistan spanning 1976 to 2019 demonstrates that governance plays a critical role in increasing national tax revenue collection over both the short and long term. By examining governance indicators alongside inflation and industrial value-added through cointegration techniques, the findings reveal that stable government, solid legal frameworks, and conflict reduction directly improve fiscal receipts. In addition, greater industrial value-added and inflation both correlate positively with tax revenue yields. Enhancing administrative performance, maintaining public order, and supporting industrial output are therefore identified as vital mechanisms for expanding the public resource base and securing sustainable domestic revenue in a developing economy.
Effective domestic revenue mobilisation is crucial for developing nations seeking fiscal independence and public investment. By showing that political stability, secure legal environments, and industrial expansion directly raise tax income, these findings help policymakers identify institutional reforms necessary to improve revenue collection and reduce reliance on external borrowing.
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Improved governance in any economy indicates government stability, secured law and order, and minimum internal and external conflicts. A higher level of governance may demonstrate the healthy performance of economic activities and tax revenue collection. Hence, it is vital to investigate the relationship between governance and tax revenue collection in any developing country. Therefore, we aim to investigate the impact of governance on tax revenue in Pakistan using control variables inflation and industrial value‐added. The Autoregressive Distributive Lag (ARDL) cointegration technique is utilized to find the long‐ and short‐run effects of hypothesized variables on the tax revenue using a period 1976–2019. After employing a cointegration on the hypothesized model, the results expose that government stability, law and order, and internal and external conflicts leave a positive and significant impact on tax revenue in the long and short run. Hence, it is concluded that governance is an essential source in expanding tax revenue in Pakistan. Moreover, industrial value‐added and inflation also show positive effects on the tax revenue. On the grounds of these results, it is proposed that the government should make serious efforts to improve governance and industrial activities for better tax revenue collection.
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DOI: 10.1155/2021/6663536
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