Impact of taxes on the 2030 Agenda for Sustainable Development: Evidence from Organization for Economic Co-operation and Development (OECD) countries

doi:10.1016/j.regsus.2023.07.001

Abstract

Abstract:

Multiple ecological and socioeconomic problems have occurred worldwide, raising the awareness of sustainability. This study aims to examine the impact of taxes on Sustainable Development Goals (SDGs) in the context of Organization for Economic Co-operation and Development (OECD) countries. This research used effective average tax (EAT), tax on personal income (TPI), tax on corporate profits (TCP), and tax on goods and services (TGS) as the variables of taxes, and employed secondary data from 38 OECD countries covering 2000-2021. The study also used Breusch-Pagan Lagrange Multiplier (LM), Pesaran Scaled LM, Bias-Corrected Scaled LM, and Pesaran Cross-sectional dependence (CSD) tests to analyze the existence of cross-sectional dependency. Then, we established the stationarity of variables through second-generation panel unit root tests (Cross-sectional Augmented Dickey-Fuller (CADF) and Cross-sectional Im, Pesaran, and Shin (CIPS)), and confirmed the long-run cointegration of the variables by using second-generation panel cointegration test (Westerlund cointegration test). The results showed that EAT, TPI, TCP, and TGS are positively associated with SDGs. However, the change in TPI has a smaller effect on SDGs than the change in EAT or TCP or TGS. The result of panel causality indicated that EAT, TPI, and TGS have a unidirectional causal relationship with SDGs. The study also found that TCP has a bi-directional causal relationship with SDGs. Moreover, the finding indicated that the OECD countries need to focus on tax policies to achieve the 2030 Agenda for Sustainable Development. This study is based on the theory of optimal taxation (TOT), which suggests that tax systems should be designed to maximize social welfare. Finally, we suggests the importance of taking a comprehensive approach for the managers and policy-makers when analyzing the impact of taxes on SDGs.

Key words: Sustainable Development Goals (SDGs), Organization for Economic Co-operation and Development (OECD) countries, Effective average tax (EAT), Tax on personal income (TPI), Tax on corporate profits (TCP), Tax on goods and services (TGS)

Md. Mominur RAHMAN. Impact of taxes on the 2030 Agenda for Sustainable Development: Evidence from Organization for Economic Co-operation and Development (OECD) countries[J]. Regional Sustainability, 2023, 4(3): 235-248.

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References 68

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Variable	Measurement	Data sources
Sustainable Development Goals (SDGs)	The SDGs are global indices that measure progress toward achieving the United Nations’ SDGs. SDGs provide a scorecard for each country on the 17 SDGs based on variables that measure the country's progress toward achieving each goal. The variable is designed to help countries identify areas where they need to focus their efforts to achieve SDGs and to track progress over time.	Sustainable Development Report (https://www.sdgind ex.org); Diaz-Sarachaga et al. (2018)
Effective average tax (EAT)	EAT indicates the percentage of total taxable amount over all taxes of OECD countries from 2000 to 2021.	Heimberger (2021)
Tax on personal income (TPI)	TPI is measured in the percentage of taxes on net income and individual capital gain over the total taxes of OECD countries from 2000 to 2021.	OECD (2022)
Tax on corporate profits (TCP)	TCP is measured in the percentage of taxes on company's net profit and capital gains over the total taxes of OECD countries from 2000 to 2021.	OECD (2022)
Tax on goods and services (TGS)	TGS is measured in the percentage of taxes on goods and services over the total taxes of OECD countries from 2000 to 2021.	OECD (2022)

Variable	Mean	Median	Minimum	Maximum	Standard deviation	Skewness	Kurtosis
SDGs	0.783	0.735	0.515	0.921	0.340	0.289	3.101
EAT	0.373	0.329	0.168	0.433	0.218	0.427	9.615
TPI	0.129	0.118	0.109	0.225	0.055	0.217	4.853
TCP	0.559	0.575	0.667	0.177	0.311	0.122	3.946
TGS	0.613	0.695	0.235	0.791	0.245	0.229	7.844

Variable	SDGs	EAT	TPI	TCP	TGS
SDGs	1.000
EAT	0.439^** (10.011)	1.000
TPI	0.321^* (4.173)	0.072^* (5.287)	1.000
TCP	0.468^* (6.048)	0.113^** (3.386)	0.101^** (4.271)	1.000
TGS	0.293^* (5.763)	0.055^* (2.873)	0.003^* (3.762)	0.138^* (4.278)	1.000

Variable	CIPS		CADF
Variable	I(0)	I(1)	I(0)	I(1)
SDGs	2.142	5.062^*	1.912	4.168^**
EAT	1.480	3.195^*	1.325	2.941^*
TPI	2.151	3.910^**	2.039^*	3.020^**
TCP	2.104	4.932^*	2.179	4.020^*
TGS	1.991	4.565^**	2.592^*	3.841^*

Statistics	Gt	Ga	Pt	Pa
Value	3.464^**	9.294^*	8.286^*	9.704^***
Z-value	3.431	1.719	1.472	0.135
P-value	0.006	0.050	0.051	0.090
Robust P-value	0.004	0.000	0.000	0.000