AN EMPIRICAL INVESTIGATION OF THE RELATIONSHIP BETWEEN TRADE LIBERALIZATION AND TAX REVENUE IN PAKISTAN

This study examines the empirical relationship between trade liberalization and tax revenue in Pakistan for the period 1982-2013. Estimation results based on ARDL model show that there exists positive relationship between trade liberalization and total tax revenue in Pakistan over the study period. The coefficient of lagged error term (ECMt–1) in short-run model is negative and significant suggesting speed of convergence to equilibrium. The coefficient (–0.3119) implies that deviation from the long-term equilibrium is corrected by 31.19% over one year. Sound and stable trade policy along with favourable environment are needed that promotes import of raw material, capital and intermediate goods which enhances trade in the country leading to enhancement of tax collection in Pakistan.