Determinants of Nontax Revenue Buoyancy in Middle-Income Countries: The Role of Money Supply and Corporate Profitability

Abstract

Growing fiscal deficits in middle-income countries make enhanced domestic revenue mobilization essential for achieving the sustainable development goals. This paper explores nontax revenue buoyancy in 26 middle-income countries over the period from 2005 to 2020, focusing on the roles of money supply and corporate profitability. The Generalized Method of Moments approach, along with a novel application of panel quantile regression, is used to address endogeneity issues and capture the heterogeneous effects of these determinants across different levels of NTR buoyancy. NTR is found to be nonbuoyant in most countries, except for resource-rich nations such as Angola and Azerbaijan. Corporate profitability and money supply show the strongest negative effect on NTR buoyancy. The quantile regression results reveal substantial variation: at low NTR levels (10th percentile), profitability and money supply positively influence buoyancy, whereas GDP growth has negative effects. This pattern reverses at high NTR levels (90th percentile). These findings highlight the importance of personalized fiscal policies and emphasize the key roles of money supply and corporate profitability in achieving fiscal sustainability. Countries should prioritize reforms in state-owned enterprises, coordinate fiscal and monetary policies prudently, and adopt context-specific strategies based on their NTR performance levels to enhance fiscal sustainability and advance progress toward the sustainable development goals.