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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 39, No. 2, pp.151-178
ISSN: 1225-0279 (Print)
Print publication date 30 Jun 2026
Received 20 Feb 2025 Revised 12 Apr 2025 Accepted 19 May 2026
DOI: https://doi.org/10.22904/sje.2026.39.2.001

Does Tax Policy Promote Economic Development? Evidence from Developing Countries with Varying Levels of Corruption

Chiranjibi Gautam ; Hochul Shin
Chiranjibi Gautam, Ph.D. Candidate, Department of Economics, Hannam University, Republic of Korea chiranjibig3@gmail.com
Hochul Shin, Corresponding Author; Professor, Department of Economics, Hannam University, Republic of Korea s2h3c7@gmail.com

JEL Classification: O11, H21, O43

Abstract

This study examines how tax structures influence economic development across different levels of control of corruption (COR), using a country panel dataset covering 52 developing countries from 1995 to 2024. The empirical analysis indicates that the direct relationship between the indirect-to-direct tax ratio and growth is relatively weak; however, this ratio becomes significant only when corruption is properly controlled. This pattern suggests that indirect taxes, which are generally considered less distortionary than direct taxes, can effectively support government revenue and foster economic growth only under high COR. An additional case study of Nepal aligns with the main panel results, confirming that the effect of tax composition on growth varies depending on the COR. Overall, the findings emphasize the importance of strengthening institutions and implementing context-specific, optimal, and balanced tax policies to promote sustainable economic growth in developing countries.

Keywords:

tax composition, economic development, control of corruption, fiscal policy, developing countries

Acknowledgments

The authors are thankful for the insightful comments and valuable suggestions provided by the anonymous referee and journal editor, which have improved the quality of this paper. The authors are responsible for any remaining errors or omissions. This research received no external funding or financial support.

This paper is based on a chapter of the first author’s doctoral dissertation submitted to the Department of Economics at Hannam University.

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