Direct Taxes and their Impact on Growth of Gross Domestic Product (GDP) in Jordan during the Period 1976-2017

Abstract

The study aimed at identifying the effect of direct taxes (income and profits tax) on growth of GDP in Jordan during the period 1976-2017. The study estimated the relationship between direct taxes, GDP, capital formation, and government expenditure. Due to the lack of co-integrated relationship, the VAR regression model was applied. To achieve the goals of the study, a causality test, the Johansson test, the analysis of variance components, and an impulse response function test were used. 

The study showed that direct taxes (income and profits tax) have a positive impact on GDP. The main recommendations of the study include reducing taxes on productive sectors, such as agriculture and industry, and searching for other alternatives to increase domestic revenues to meet the budget deficit, rather than increasing direct taxes, such as the creation of productive projects that contribute to reducing the deficit.