Macroeconomic Environment and Taxes Revenues in Pakistan: An Application of ARDL Approach

Taxation intends to raise the necessary funds for government expenditures, redistribution of income and stabilization of the economy, influence the allocation of resources and to overcome the externalities. Taxation is also supportive of the process of stable economic growth. This study has examined the impact of macroeconomic situations on tax revenues in the case of Pakistan over the period of 1975 to 2016. The study has very interesting results as unemployment has a positive and significant impact on tax revenues. There is a positive and significant relationship between money supply tax revenues. Inflation has negative and significant relation with tax revenues in the case of Pakistan. The study shows that Pakistan needs a sound macroeconomic environment for enhancing tax revenues. A country with stable macroeconomic situations would create greater opportunities for investment and more jobs are created. This would further enhance purchasing power on the part of consumers and bearing taxes burden become easy for them. Moreover, there is a dire need of tax education to the masses.