Tax Revenue Mobilization and Economic Growth in Nepal: An ARDL Bounds Testing Approach

Abstract

This study examines the long-run and short-run relationships between tax revenue mobilization and economic growth in Nepal, employing the Autoregressive Distributed Lag (ARDL) bounds testing approach. Utilizing annual time-series data from 1975 to 2023, the study analyzes the dynamic interactions between GDP growth, tax revenue, government expenditure, remittances, and inflation. The ARDL bounds test confirms a significant long-run cointegrating relationship among the variables. The results reveal that tax revenue has a negative long-run impact on economic growth (-2.69), while government expenditure positively influences growth (3.37). The error correction mechanism indicates a rapid adjustment speed of 179.9% toward long-run equilibrium. These findings suggest that Nepal's tax system may be creating distortionary effects that hinder growth, while productive government spending enhances economic performance. The study provides crucial insights for Nepal's fiscal policy formulation in the context of federal restructuring and sustainable development goals.