Effect of Economic Growth and Fiscal Pressure on Value-Added Taxes

The Value Added Tax (VAT) represents the first source of tax revenue for the Ecuadorian economy due to its broad tax base and ease of collection, characteristics that allow this tax to generate a large amount of revenue necessary to increase the quality and quantity of public services in Ecuador. The objective of this paper is to identify the incidence of economic growth and the tax pressure on VAT collection for the period 2000-2019. An Ordinary Least Squares (OLS) model transformed by the Box-Cox methodology was used in conjunction with the Prais-Winsten and Cochrane-Orcutt procedure. The results show the existence of a positive relationship between economic growth and VAT revenue, as well as a positive relationship between tax pressure and VAT revenue. However, when considering the squared tax pressure variable, it became evident that, if the tax pressure increases above the optimal point, the results on VAT revenue will be negative. The results are found to be in line with other papers measuring these variables.