Pak-Japan comparative study of consumption tax (value added tax) and its effects on economic growth rate and gross savings

Abstract. The purpose of this research attempt is to statistically observe the causal impact of consumption tax (value added tax) on GDP/economic growth and gross savings in Pakistan as well as in Japan and their comparative analysis for the period defined (1989 to 2015). Furthermore, to explore if the increase in value-added tax is either contributing to rising growth rate or increasing gross savings using time series secondary data. It is found through running regression that tax on goods and services (value added tax) maintains significant and healthy/positive association with gross domestic product growth rate and gross saving in Japan and Pakistan also. An increase in value-added tax contributes more to gross savings in Japan and Pakistan than the economic growth rate. The policymakers in Japan and Pakistan need to design policies to increase value-added tax rates to increase gross savings that could be utilized to increase physical and human capital investment to increase more production to achieve sustained economic growth. Also, this study guides Japan and Pakistan policymakers to restrict the export of the primary product to avoid value-added tax loss. Keywords. Consumption tax, VAT, Economic growth, GDP growth, Gross savings. JEL. H22, E21, O47.