The Effect of Economic Factors on the Tax Ratio in Trinidad and Tobago

We focus on the potential economic factors of tax revenue in Trinidad and Tobago and present cointegration test statistics for a second order VAR(2) based on Johansen's maximum likelihood approach. Our results suggest a positive relationship between the level of income and the tax ratio and also that external debt and inflation impede the collection of taxes. Additionally, we find that the degree of openness exerts an insignificant impact on the tax ratio. Our study recommends potential areas that may be targeted in order to raise tax revenues and which may also raise the consciousness that tax reform is a very important subject matter.