A case study of Cointegration relationship between tax revenue and foreign direct investment

Abstract

The government of Sri Lanka is to move their policy both taxes and foreign direct investment as an income factors. The main objective of this study is to explore the Cointegration relationship between tax revenue and foreign direct investment in Sri Lanka and also this study has some sub objectives. To achieve these objectives, both TAX and FDI data are collected from the year 1990 to 2013 as a sample periods. All collected data are analyzed based on the regression method. Especially this analyze is considering the constant elasticity model. As per the results of the regression outcome, the FDI is contributing 77 percent on the TAX revenue in the Sample period. As well as, both TAX and FDI variables encompass long run relationship between them. Finally this study suggests to policy makers of the Sri Lankan government that, they have to take indispensable action to increase the FDI, for the reason that, the FDI is one of the income generating factors of the Sri Lankan economy.