Examining the asymmetric influence of tax revenue policy in an oil-dependent economy: evidence from Oman

Purpose This study aims to examine the asymmetric effects of tax revenue policies on the economic activity of Oman. Design/methodology/approach This study applies the nonlinear autoregressive distributed lag model and uses data from 1980 to 2022. Findings The findings confirmed that economic activity has a cointegrating relation with the positive and negative shocks of the tax revenue policy and selected macroeconomic variables. In addition, the long-run results show that positive changes in tax revenues have a positive significant effect on the economy, while negative shocks in tax revenues have a negative effect on the economy at the 5% significance level. The study concludes that a significant long-term asymmetric relationship exists between taxation policy changes through the revenue channel for the economy of Oman. Originality/value No previous study has specifically investigated the asymmetric impact of tax revenue policies on the economy of Oman, which is an oil-dependent country. To the best of the authors’ knowledge, this study is the first attempt to explore this relationship with respect to the Omani economy, and it uses extensive time series data and employs various contemporary econometric techniques. Given Oman’s reliance on oil and gas revenues, which typically fund approximately 70% of the country’s annual budget through taxation on oil and gas sold, fluctuations in global oil prices directly influence country’s fiscal position. Thus, this study contributes to the literature by empirically confirming the asymmetries impact of fiscal (tax) policies on Oman’s economy. The implication of the results suggests that the government cut back on tax incentives and tax exemptions for local and foreign businesses. This move can foster economic growth and reduce the negative competition effect among investors and taxpayers, which may ultimately improve the country’s tax revenue.