The Impact of Tax Revenue on Macroeconomic Variables: A Case Study from Palestine

Taxes are a vital component of fiscal policy. Governments use tax revenues to either stimulate or slow down an economy. The purpose of this paper is to examine the cause-and-effect relationship between taxes and inflation, Real GDP, Real GDP Per Capita, and unemployment for the State of Palestine. The data was collected from the Palestinian Monetary Authority, covering the period from 1996 to 2022. A time series analysis was conducted to measure the cause-and-effect relationship. The results indicated that taxes are positively significant for both Real GDP and Real GDP Per Capita. This finding helps policymakers in determining the impact of tax revenue on the Palestinian economy, especially since Israel controls some of the collection of tax revenues. Meanwhile, taxes were not significant for either inflation or unemployment.