VAT Revenue and Economic Growth in the Middle East and North Africa Region: Evidence from Panel Data Analysis

Abstract

The Middle East and North Africa (MENA) region countries are characterized by a great diversification in the level of political, economic, and socio-political principles in the world. This diversity applies also to their tax regime, particularly VAT. Taxes are the primary source of funding for the government and public expenditures by generating considerable revenue to fund the national product. MENA region countries, like any other country with a population that typically keeps increasing throughout time, tend to boost their economic growth to ensure higher living standards, higher real income, and innovation. This study examines the impact of important drivers of MENA countries that affects GDP growth, based on a large sample of 14 countries from 2010–2020, information collected from unit cross-sections (country), and over time. Then, panel regression is the appropriate statistical method to analyze two-dimensional data, through a fixed effect panel data analysis. The sample of countries has been chosen based on pre-established criteria reflecting the availability of data for the study period. Collected data have been analyzed using the software STATA version 17. The findings obtained prove a positive significant VAT impact on economic growth for the sample of MENA region countries. This study helps policymakers in assessing and reviewing their tax policy related to VAT to maximize their source of revenue generated by this tax. The findings of this study supported that the unemployment rate and CPI decrease GDP growth, whereas VAT leads to an increase of economic growth in this region. This proves the importance of VAT tax in raising government revenue.