Role of Tax Revenue, Non-tax Revenue, and Foreign Aid to Increase the Size of Budget in Nepal

Purpose: The purpose of the present study is to find the impact of tax revenue, non-tax revenue, and foreign aid to increase the size of the budget in Nepal.

Methods: This study is based on descriptive, analytical, and exploratory research designs. The Johnsen Co-integration Test, VECM, Wald Test, and Granger Causality Test are used to find long-run relation, impact, short-run causality, and granger cause between the pairs of variables.

Results: The tax revenue, non-tax revenue, foreign aid, and budget are co-integrated, or they have a long-run association ship. The result of VECM shows that tax revenue, non-tax revenue, foreign aid is nicely fitted, and they are jointly significant to explain the size of the budget in Nepal. Short-run causality was found between the size of budget and tax revenue and size of budget and foreign aid, but there was an absence of short-run causality between budget and non-tax revenue in Nepal. The granger cause was not found between the pair of variables.

Implications: It seems to increase the tax revenue and decrease the dependency on foreign aid.

Limitations: This study was based on the secondary data of 40 years from the fiscal year 1979/80 to 2018/19. Only three variables, tax revenue, non-tax revenue, and foreign aid, are considered the effecting factor of the budget size. Hence, further study is necessary by employing other tools and variables.

Originality: The author was not affected by the study and findings of others.