The Tax Rate And Private Savings Essay

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Figure (7) may work as another evidence of the inability of Egyptian tax system to mobilize domestic savings, as it shows that while domestic private savings, as a percent of GDP, was fluctuating around a downward sloping trend, marginal tax rate was fluctuating around a relatively horizontal trend which indicates that marginal tax rate has no or insignificant power over stimulating domestic private savings.
Figure 7.Marginal Tax Rate and Private Domestic Savings to GDP Source: Author’s calculations based on data extracted from Ministry of Finance, Monthly Financial Report, different editions.
To verify this conclusion, the effect of main sources of tax revenue (taxes on income, taxes on property, taxes on goods and services and tariff) on domestic savings will be examined statistically. The only source of tax revenue that has statistically significant effect on domestic savings is property tax. Tax on properties is negatively related to domestic savings with coefficient -12, see appendix (3). Accordingly, small reduction in property taxes will have magnitude increase in domestic savings. Thus, if financial markets are operating efficiently, tax cut on properties will have a considerable positive effect on the process of economic growth, especially since property taxes represent only 3.6%, in average, of total tax revenue.

While domestic saving is a leakage of income that flows outside the economy; however, it can be re-injected in the economy again
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