Effect of tax changes on economic growth in Malaysia

Lee, Pei Xin and Ong, Zhi Yi and Tiew, Chong Yi (2023) Effect of tax changes on economic growth in Malaysia. Final Year Project, UTAR.

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Abstract

Tax is a mandatory contribution collected by governments from individuals or companies to support their expenditures. In this paper, we would like to strengthen the previous empirical literature. Thus, we estimate the effect of tax changes on economic growth in Malaysia from 1970 to 2019. Before estimated equation, we apply different types of unit root test and Johansen Cointegration test as pre-checking tools to ensure the estimated equation provide valid results. After that, we apply OLS method with ARCH test and Jarque-Bera test to examine the effect of tax changes on economic growth in Malaysia. Throughout the findings, we discovered that personal income tax has a positive relationship with Malaysia economic growth in the long run. Additionally, sales and services tax has a negative relationship with Malaysia economic growth in the long run. However, a rise in the personal income tax might affect government spending, which would have a indirect negative impact on economic growth. In addition to sales and services tax influencing government spending, an increase in the sales and services tax has a beneficial effect on economic development.

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