EFFECTIVENESS OF VAT ON NEPALESE ECONOMY PROXIED TO GDP WITHOUT AGRICULTURE

This paper pursues to examine the contribution of Value added tax (VAT) on Nepalese economy (GDP) in aggregate level without agriculture. It, therefore, analyzes the influence of VAT on GDP in aggregate level without agriculture. This study adopts descriptive and explanatory research design and attempts to conclude the liaison between VAT and the GDP without agriculture, exchange rate, market capitalization money supply and government spending at real price being the overriding variables included in the model. In order for the specification of a model of cointegrated regression model with a time series data of the variables are employed for the study period of 25 years, from 1999/2000 to 2023/24. The values of all the variables are converted into real price (constant price) by GDP deflator. The GDP deflator and CPI year 2013/14 have been assumed equivalent to the base year 2013/14 according to Nepalese fiscal year. Meanwhile it is observed that residuals are not normally distributed, autocorrelation and multicollinearity problem in the model, it is necessary to improve the non-normal distribution, autocorrelation and multicollinearity problem in the model. Therefore, the data are transposed into first difference and run the model with error correction model. The shows that the explanatory power situs slot777 terpercaya gacor of the model is 0.528 indicating that 52.89 % of the variation of GDP is explained to the extent of 52.8 by percent variation of the independent variable in the model. The diagnostic test suggests that the residuals do not violet classical assumptions. The lagged residuals from II equation of Table 2 are statistically significant indicating the acceptable ground to take variable as cointegrated set. The result allows long-run and short-run dynamics of all the relationship between GDPWA and VAT. The estimated coefficient of VAT in error correction model shows that one percent point rise in VAT has led to 0.438 percent point increase in real GDPWA in short-run, whereas it is found 0.558 percent point in long-run. It means that short-run marginal productivity of VAT is 0.438 percent point, whereas its long-run percent point is 0.558