Stock market and tax revenue as determinants of economic growth : Panel data evidence from developing Asia

Traditional growth literature advocated the role of fiscal policy in establishing economic growth, but it did not consider the role of the stock market and the financial intermediation as the potential determinants of growth. The authors investigate ten Developing Asia nations over the period 1990 to 2008. To study differences among the countries, the study sub-divides Developing Asia into East Asia Pacific (China, Thailand, Malaysia, Indonesia, Taiwan, Philippines) and South Asia (Bangladesh, India, Pakistan, Sri Lanka). Findings provide evidence in support of Laffer-Khaldun curve and the Levine's endogenous growth models: stock market and tax revenue do have an impact on economic growth even though the impact might be somewhat small or in some cases even negative. For policy implementation, results indicate that in order to promote economic growth, governments of ten Developing Asia should improve the channels between the stock market, taxation policy and economic growth by developing stock market liquidity and by identifying growth-oriented tax reform strategies.