Impact of tax revenue on economic growth in Rwanda from 2007-2017

4.9 IMPULSE RESPONSE FUNCTION

The impulse response function IRF shows the dynamic properties of the model .it facilitates to test the response of dependent variable to unit shock of independent variables.as it is presented in the following tables of IRF, the vertical axis shows the deviation from the baseline of the target variable in response to a change in one of the regressors,the horizontal axis also indicates the number of years under which the explained variable tends to be affected after any shock from one of the independent variables.

^{Response to Cholesky One S.D. Innovations} #177; ^{2 S.E.}

^.04

^.03

^.02

^.01

^.00

^-.01

^-.02

^{Response of LGDP to LGDP}

^{1 2 3 4 5 6 7 8 9 10}

^{Response of LGDP to LTGS}

^{Response of LGDP to LDT}

^{1 2 3 4 5 6 7 8 9 10}

^{Response of LGDP to LTITT}

^.04

^.03

^.02

^.01

^.00

^-.01

^-.02

^.04

^.03

^.02

^.01

^.00

^-.01

^-.02

.⁰⁴

^.03

^.02

^.01

^.00

^-.01

^-.02

Figure 4.6. Impulse response of GDP to independent variables. Figure 4.6 revealed that:

^{1 2 3 4 5 6 7 8 9 10}

^{1 2 3 4 5 6 7 8 9 10}

· Response of LGDP to LGDP means that, if one standard deviation shock is given to GDP, how GDP shall be reacting. When one standard deviation shock is given to GDP, GDP reacts positively.

· Response of LGDP to LDT means that, if one standard deviation shock is given to LDT, how LGDP shall be reacting. When LDT has positive or negative shock, LDT positively.

· Response of LGDP to LTGS means that, if one standard deviation shock is given to LTGS, how LGDP shall be reacting. When one standard deviation shock is given to LTGS, LGDP reacts positively.

· Response of LGDP to LTITT means that, if one standard deviation shock is given LTITT, how LGDP shall be reacting. When one standard deviation shock is given to LTITT, LGDP reacts negatively

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CHAPTER -5 SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

This chapter presents the summary, Conclusions and Recommendations for further research 5.2 SUMMARY

The study examines tax revenue and economic development of Rwanda from 2007to 2017. The theoretical literature upon which this work hinged on included, socio-political theory, expediency theory, faculty theory and benefit received theory.

Therefore, to achieve our objectives, data were collected on gross domestic product (GDP), direct tax (DT), tax on goods and services (TGS) and Tax on international trade and transactions (TITT) from Rwanda Revenue Authority(RRA) and National Institute of statistics of Rwanda(NISR). The study adopted the Johensen co-integration , The results of the unit root and the co-integration tests revealed that all variables are integrated of order one, I(1) and cointegrated indicating the existence of a long-run equilibrium relationship among variables included in the model and we use also Vector Error Correction Model (VECM) estimation method for data analysis to estimate for short run result. The empirical findings showed that direct tax(DT)and tax on goods and services(TGS) variables have positive at 0.1631 to 0.60 31 respectively and it impact on economic growth, while Tax on international trade and transactions(TITT) variable has negative at -0.005913 and it is insignificant impact on economic growth.