ASSESSING THE EFFECTS OF TRADE OPENNESS ON TAX COLLECTION IN TRANSITIONAL MARKETS

This study investigates the influence of trade openness on tax revenue in transitional economies, using panel data covering the period 2005–2020. Employing pooled OLS, fixed effects, random effects, and dynamic generalized method of moments (GMM), the analysis also considers the role of financial development as both a direct determinant of tax revenue and a complementary factor to trade openness. Findings reveal that trade openness exerts a positive and significant impact on tax revenue under fixed effects, random effects, and dynamic GMM models, while the pooled OLS results indicate a positive but non-significant effect. Similarly, financial development significantly enhances tax revenue under fixed effects, random effects, and dynamic GMM, but its impact remains statistically insignificant under pooled OLS. Furthermore, the interaction between trade openness and financial development demonstrates a significant positive effect on tax revenue in all models except pooled OLS, where the relationship is positive but non-significant. These results highlight financial development as a key channel through which trade openness contributes to improved tax revenue performance in transitional economies. The study underscores the importance of policies that simultaneously promote trade openness and strengthen financial systems, thereby enhancing the capacity of transitional economies to mobilize tax revenue and sustain economic growth.