Examining the taxation–inflation Nexus in Namibia
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Date
2025
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Publisher
University of Namibia
Abstract
This study investigates the complex relationship between taxation and inflation in
Namibia from 1990Q1 to 2023Q4 using Nonlinear Autoregressive Distributed Lag
(NARDL) methodologies. The Augmented Dickey-Fuller (ADF) and Phillips Perron
(PP) unit root tests suggest that the variables are integrated to order I(0) and I(1).
Unlike the traditional ARDL analysis which assumes linear associations, the Brock Dechert-Scheinkman (BDS) and Wald tests revealed an asymmetric association
between taxation and inflation in Namibia, justifying the suitability of the NARDL
model. The results suggest that positive shocks in taxation have distinct short-term and
long-term effects on inflation, challenging the assumption of a symmetrical
relationship. Furthermore, only for robustness purposes, the Fully Modified Ordinary
Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimates,
while exhibiting some variation compared to the NARDL's long-run estimates, suggest
a long-run relationship between taxation and inflation. The Vector Error Correction
method (VECM) analysis reveals no causal relationship between taxation and inflation
in Namibia in the short run but uncovers a long-run relationship. Additionally, the
analysis exposes a nuanced relationship between taxation and inflation in Namibia,
diverging from previous studies that often assume a linear connection. The study
uncovers a long-term, nonlinear nexus between taxation and inflation in Namibia.
Therefore,it is recommended that a gradual increase in taxation can effectively
mitigate inflationary pressures by curbing excessive spending, and may enable the
Bank of Namibia to sustain a stable interest rate environment in Namibia
Description
A thesis submitted in partial fulfilment of the requirements for the Degree of Master of Science in Economics
Keywords
Taxation, Inflation, Nonlinear autoregressive distributed lag, Namibia, Fully modified ordinary least squares, Dynamic ordinary least squares, Vector error correction method, University of Namibia