The Macroeconomic Effects of Corporate Income Tax Rate Reductions
This study examines the impact of the corporate income tax rate reduction on the Malaysian macro economy and its relationship with economic growth. The reduction in the tax rate coincides with the Keynesian theory that suggests a government should intervene to halt sluggishness in the economy by...
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| Format: | Thesis |
| Language: | English English |
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2008
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| Online Access: | http://psasir.upm.edu.my/id/eprint/8190/1/GSM_2008_13_.IR.pdf |
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my-upm-ir.8190 |
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Universiti Putra Malaysia |
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PSAS Institutional Repository |
| language |
English English |
| advisor |
Mohamed Ramadili, Shamsher |
| topic |
Corporations - Taxation - Case studies |
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Corporations - Taxation - Case studies Mohamad Ali, Shaharudin The Macroeconomic Effects of Corporate Income Tax Rate Reductions |
| description |
This study examines the impact of the corporate income tax rate reduction on the
Malaysian macro economy and its relationship with economic growth. The reduction in
the tax rate coincides with the Keynesian theory that suggests a government should
intervene to halt sluggishness in the economy by lowering the corporate income tax rate
or escalating public spending, or both as it has a relationship with economic growth.
The government could correct the sluggishness by raising their spending or lowering
tax rate to transfer funds from public to private sector in terms of this tax incentive or
increase public spending to stimulate aggregate demand for the goods and services in
the country. Advocates claim that the country's economic growth during the 1990s was
evidence on how this theory works. The multiplying effect of this short-term economic stimulus is that when companies increase their investments: more jobs are created,
increase in productivity, boost exports, generate more profits and paying more tax to
the Government that will improve budget position and gross domestic product and the
economy starts growing again. When the economy starts grow again, more foreign
investments both through direct investment and portfolio capital will be attracted to do
business in this country as they seek opportunity for profits and growth. Advocates
claim that the country's economic growth during the 1990s was evidence on how the
theory works. There are many findings published in the developed economies discuss
the macroeconomic effect of the corporate income tax rate on the economy and its
relationship with the economic growth. However, there is no documented evidence avail
so far to address this topic in the Malaysian context and research in this area is still
lacking as well. Data collected from published reports by the Treasury Department, the
Statistics Department, the Central Bank of Malaysia and cross-checked against the
International Monetary Fund publications. A time series econometric analysis was used
to study the macroeconomic effect of the reduction in the corporate income tax rate and
the relationship with the country's economic growth. This method normally employed by
researchers to ascertain the macroeconomic effect of changes in the government
policy. The findings indicate that lowered corporate income tax rate had minimal effect
on the country's macro economy. All selected macroeconomic variables had
insignificant effect with the reduction in the tax rate except for the foreign exchange rate
and gross domestic product (GOP). The significant level for both variables is 0.01. The
significant increased in the exchange rate might not directly due to the reduction in the
tax rate but instead from the changes in the Government monetary policy. The
significant increased in the GOP confirms with the Keynesian theory that claim lower tax
rate has relationship with the country's economic growth. This study, however, do not
supports the application of the Keynesian theory in the Malaysian context especially when the whole world is currently facing with the economic uncertainty. Malaysia
currently has not incurred any budget surplus or intention to increase its public debt to
finance this tax incentive. Thus the Government has no avail means to finance the
short-term reduced in their real income whenever they reduced the corporate income
tax rate. This short-term stimulus incentive needs to be backed up either by budget
surplus or borrowing money otherwise the nation savings are likely affected which will
aggravate the country's future economic growth. Surprisingly, lowered tax rate is found
not effective in attracting long-term foreign investments to do business in this country.
Whilst the transformation done on the tax assessment system in 2000 was found not
significantly improving the country's macro economy but it has significant relationship
with the Government Financial Position group. The significant level is at 0.10. The
findings are inconclusive for the period under study. |
| format |
Thesis |
| qualification_level |
Master's degree |
| author |
Mohamad Ali, Shaharudin |
| author_facet |
Mohamad Ali, Shaharudin |
| author_sort |
Mohamad Ali, Shaharudin |
| title |
The Macroeconomic Effects of Corporate Income Tax Rate Reductions |
| title_short |
The Macroeconomic Effects of Corporate Income Tax Rate Reductions |
| title_full |
The Macroeconomic Effects of Corporate Income Tax Rate Reductions |
| title_fullStr |
The Macroeconomic Effects of Corporate Income Tax Rate Reductions |
| title_full_unstemmed |
The Macroeconomic Effects of Corporate Income Tax Rate Reductions |
| title_sort |
macroeconomic effects of corporate income tax rate reductions |
| granting_institution |
Universiti Putra Malaysia |
| granting_department |
Graduate School of Management |
| publishDate |
2008 |
| url |
http://psasir.upm.edu.my/id/eprint/8190/1/GSM_2008_13_.IR.pdf |
| _version_ |
1794018727852769280 |
| spelling |
my-upm-ir.81902023-12-18T07:53:50Z The Macroeconomic Effects of Corporate Income Tax Rate Reductions 2008-12 Mohamad Ali, Shaharudin This study examines the impact of the corporate income tax rate reduction on the Malaysian macro economy and its relationship with economic growth. The reduction in the tax rate coincides with the Keynesian theory that suggests a government should intervene to halt sluggishness in the economy by lowering the corporate income tax rate or escalating public spending, or both as it has a relationship with economic growth. The government could correct the sluggishness by raising their spending or lowering tax rate to transfer funds from public to private sector in terms of this tax incentive or increase public spending to stimulate aggregate demand for the goods and services in the country. Advocates claim that the country's economic growth during the 1990s was evidence on how this theory works. The multiplying effect of this short-term economic stimulus is that when companies increase their investments: more jobs are created, increase in productivity, boost exports, generate more profits and paying more tax to the Government that will improve budget position and gross domestic product and the economy starts growing again. When the economy starts grow again, more foreign investments both through direct investment and portfolio capital will be attracted to do business in this country as they seek opportunity for profits and growth. Advocates claim that the country's economic growth during the 1990s was evidence on how the theory works. There are many findings published in the developed economies discuss the macroeconomic effect of the corporate income tax rate on the economy and its relationship with the economic growth. However, there is no documented evidence avail so far to address this topic in the Malaysian context and research in this area is still lacking as well. Data collected from published reports by the Treasury Department, the Statistics Department, the Central Bank of Malaysia and cross-checked against the International Monetary Fund publications. A time series econometric analysis was used to study the macroeconomic effect of the reduction in the corporate income tax rate and the relationship with the country's economic growth. This method normally employed by researchers to ascertain the macroeconomic effect of changes in the government policy. The findings indicate that lowered corporate income tax rate had minimal effect on the country's macro economy. All selected macroeconomic variables had insignificant effect with the reduction in the tax rate except for the foreign exchange rate and gross domestic product (GOP). The significant level for both variables is 0.01. The significant increased in the exchange rate might not directly due to the reduction in the tax rate but instead from the changes in the Government monetary policy. The significant increased in the GOP confirms with the Keynesian theory that claim lower tax rate has relationship with the country's economic growth. This study, however, do not supports the application of the Keynesian theory in the Malaysian context especially when the whole world is currently facing with the economic uncertainty. Malaysia currently has not incurred any budget surplus or intention to increase its public debt to finance this tax incentive. Thus the Government has no avail means to finance the short-term reduced in their real income whenever they reduced the corporate income tax rate. This short-term stimulus incentive needs to be backed up either by budget surplus or borrowing money otherwise the nation savings are likely affected which will aggravate the country's future economic growth. Surprisingly, lowered tax rate is found not effective in attracting long-term foreign investments to do business in this country. Whilst the transformation done on the tax assessment system in 2000 was found not significantly improving the country's macro economy but it has significant relationship with the Government Financial Position group. The significant level is at 0.10. The findings are inconclusive for the period under study. Corporations - Taxation - Case studies 2008-12 Thesis http://psasir.upm.edu.my/id/eprint/8190/ http://psasir.upm.edu.my/id/eprint/8190/1/GSM_2008_13_.IR.pdf text en public masters Universiti Putra Malaysia Corporations - Taxation - Case studies Graduate School of Management Mohamed Ramadili, Shamsher English |