The impact of tax pressure on long-term economic growth in Morocco

Benkejjane, Noureddine; Mhatchan, Safaa; Oudgou, Mohamed; Boudhar, Abdeslam Article The impact of tax pressure on long-term economic growth in Morocco Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Benkejjane, Noureddine; Mhatchan, Safaa; Oudgou, Mohamed; Boudhar, Abdeslam (2024) : The impact of tax pressure on long-term economic growth in Morocco, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12, Iss. 8, pp. 1-18, https://doi.org/10.3390/economies12080201 This Version is available at: https://hdl.handle.net/10419/329127 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Economies 12: 201. https://doi.org/ 10.3390/economies12080201 Academic Editor: Alessandro Piergallini Received: 15 May 2024 Revised: 15 July 2024 Accepted: 24 July 2024 Published: 6 August 2024 Copyright: © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). economies Article The Impact of Tax Pressure on Long-Term Economic Growth in Morocco Noureddine Benkejjane 1,* , Safaa Mhatchan 2, Mohamed Oudgou 1and Abdeslam Boudhar 1 1Research in Economics and Management of Organizations Laboratory (LAREMO), National School of Business and Management, Sultan Moulay Slimane University, Beni Mellal 23000, Morocco; [email protected] (M.O.); [email protected] (A.B.) 2Economic and Management Sciences Studies and Research Laboratory (LERSEG), Polydisciplinary Faculty, Sultan Moulay Slimane University, Beni Mellal 23000, Morocco; [email protected] *Correspondence: benkejjane.nour[email protected] Abstract: Despite the tax reform in the 1980s, the Moroccan tax system still suffers from structural vulnerabilities that have led to inefficient tax policies and increasing sectoral disparities, which have led to an increase in the tax pressure rates between 1990 and 2020. To overcome these vulnerabilities, and according to the recommendations of the 2019 National Tax Conference, the Moroccan tax system has been recently restructured, with the aim of strengthening the principles of equity and tax efficiency. The main objective of this paper is to determine the impact of the tax pressure on long-term economic growth in Morocco from 1990 to 2020. To do so, the methodology adopted in this work consists of verifying the effect of the tax pressure on economic growth through a quantitative methodology based on two vector autoregression approaches: the vector autoregression model (VAR) and the vector error correction model (VECM). The results of this study confirm that the effect of fiscal pressure on economic growth in Morocco is not significant in the long run, and therefore, we can deduce that taxation is not yet a well-mastered instrument for the state to act on the economic sphere. The results show a complex relationship between tax pressures and economic growth in Morocco, underlining the importance of tax reform. However, the research is limited by the specific models and the need to explore other determinants. The contribution of this paper lies in its in-depth empirical analysis of fiscal pressure and its influence on long-term economic growth in Morocco, as based on VAR and VECM modeling. This econometric approach makes it possible to isolate the dynamic effects and responses of economic variables over time, offering an understanding of the interactions between tax policy and long-term economic growth. By focusing specifically on the Moroccan context, this study offers an original perspective and helps to fill the gap in the empirical research in this area while providing a valuable analytical framework for assessing fiscal policies and their impact on long-term economic growth. Keywords: tax pressure; economic growth; Engel and Granger approach; VAR modeling 1. Introduction Zagler and Dürnecker (2003) state that tax policy plays a key role in shaping a country’s economic growth. Decisions about government spending and revenues have a direct impact on the pace of growth. Expansionary fiscal policies, such as tax cuts or increases in public spending, can stimulate aggregate demand and boosting growth, especially during a recession. Conversely, restrictive fiscal policies can control inflation and stabilize the economy in periods of overheating. A well-designed tax policy also helps to reduce social and territorial inequalities, creating an environment conducive to more inclusive and sustainable economic growth. Understanding the influence of tax policy on economic growth provides decision-makers with the tools they need to design effective economic policies tailored to the specific needs of their country. Economies 2024,12, 201. https://doi.org/10.3390/economies12080201 https://www.mdpi.com/journal/economies Economies 2024,12, 201 2 of 18 In this regard, an examination of the objectives of tax policy prompts us to question the degree of influence exerted by the tax parameter on the achievement of economic growth. Consequently, this places us in a position to assess the level of tax pressure required by the state to achieve the objectives of optimal long-term economic growth. In response to Morocco’s public finance crisis during the 1980s, the government undertook a fiscal policy reform under the Structural Adjustment Plan (SAP). The aim was to establish a modern, coherent and efficient fiscal and economic policy that would provide sufficient financial resources to overcome the challenges posed by the crisis. The main focus of this reform, through Framework Law No. 3.83 on tax reform, was to replace cedulas with synthetic taxes, thereby increasing the number of taxpayers and tax revenues, broadening the tax base, and minimizing the tax pressure. Despite the implementation of this tax reform, the Moroccan tax system still suffers from structural vulnerabilities that have led to inefficient tax policies and increased sectoral disparities, resulting in higher rates of tax pressure between 1990 and 2020. To overcome these vulnerabilities, in line with the recommendations of the 2019 National Tax Conference, the Moroccan tax system was restructured through Framework Law No. 69.19 on Tax Reform Fiscal (2021), aiming to reinforce the principles of fairness and tax efficiency. The homogeneous, stable and chronically uneven distribution of tax pressure levels in Morocco confirms that the Moroccan tax system is heavily reliant on consumers and wage earners, leading to a reduction in labor income in favor of capital, squeezing consumption and domestic demand. Based on studies already carried out in Morocco, such as the work of Afifi and Ramdaoui (2019) on the relationship between tax pressure in Morocco and economic growth by estimating the Scully model, Salhi and Echaoui (2020) have developed a study to model the optimal tax rate in Morocco over the period 1985–2019, and Belahouaoui and Attak (2022) analyzed the relationship between tax pressure and taxpayer compliance through a review of the theoretical literature. It becomes evident that there is a dearth of studies on tax pressure and its impact on the long-run economic growth in Morocco. In this sense, the contribution of this article lies in its in-depth empirical analysis of fiscal pressure and its influence on long-term economic growth in Morocco, as based on VAR and VECM modeling. This econometric approach makes it possible to isolate the dynamic effects and responses of economic variables over time, offering an understanding of the interactions between tax policy and long-term economic growth. By focusing specifically on the Moroccan context, this study offers an original perspective and helps to fill the gap in the empirical research in this area while providing a valuable analytical framework for assessing fiscal policies and their impact on long-term economic growth. The aim of this article is to determine the impact of tax pressure on long-term economic growth in Morocco. The problem posed in this article is to answer the following question: what is the impact of tax pressure on long-term economic growth in Morocco? The methodology adopted in this work consists of verifying the effect of tax pressure on economic growth using a quantitative methodology based on two vector autoregression approaches: the vector autoregression model (VAR) and the vector error correction model (VECM). This article will be subdivided into four parts: the first deals with a review of the theoretical literature; the second is devoted to the presentation of stylized facts related to the evolution of tax pressure rates in Morocco; the methodology of the work is presented in the third part; and the last part is devoted to the results and discussion. 2. Literature Review 2.1. Taxation and Economic Growth It is important to note that taxation cannot be seen as a universal solution to all economic problems and that it needs to be designed and used strategically to maximize its impact on growth. Furthermore, it is essential to consider the long-term economic and Economies 2024,12, 201 3 of 18 social consequences of taxation, as a tax that may appear beneficial in the short term may have negative effects in the long term. Keynes (1936) advocated the role of government intervention through fiscal policy in influencing economic activity. He also supported the ideology that aggregate demand stimulates an economy’s level of production. According to Keynesian theory, taxation influences the level of disposable income and aggregate demand, thereby affecting the quantity of production. Solow (1956) has called into question the Harrod–Domar model of economic growth. This model concludes that the economy is in an unstable long-term growth equilibrium based on key parameters such as the savings rate, the capital–output ratio and the rate of increase in the working population. However, Solow showed that this conclusion was largely based on the fundamental assumption that production takes place under conditions of fixed proportions. By abandoning this assumption, the concept of unstable equilibrium seems to lose its relevance. It is therefore essential to examine tax structures carefully so as to minimize the negative impact of taxes on economic growth while preserving budget revenues. The exogenous growth model underlines the risks of excessive taxation, noting its negative impacts on investment, innovation and economic activity, while accentuating the complexity of the relationship between taxation and external growth. In short, taxation can have a significant impact on exogenous economic growth, but it is important to consider the complexity of this relationship and to design taxation adapted to the economic and social circumstances of each country. In the 1980s, with the advent of neo-liberalism, the classical vision of taxation returned with a vengeance, with reduced taxation and increased privatization of public services. This approach was criticized for its impact on social inequality and its lack of support for long-term growth. Romer (1990) explored the concept of endogenous economic growth. This model emphases the essential role of human capital and intentional investment in research and development in stimulating economic growth. Thus, the relationship between economic growth and taxation is complex, as tax policies can influence these investment decisions and, consequently, long-term growth. The endogenous model accentuates the impact of corruption on the ideal taxation level by predicting an inverted U-shaped relationship between taxes and growth. These viewpoints come together to emphasize the significance of carefully considered taxation that can support wise public investment. They also emphasize how equitable taxation has the power to lessen inequality, enhancing social cohesiveness and promoting sustained economic expansion. To put it briefly, these models highlight the necessity of a just tax system in order to support long-term economic growth. The model of Barro et al. (1990) on growth and taxation is an economic theory that suggests that high levels of taxation can reduce long-term economic growth by discouraging investment and capital accumulation. According to this model, governments should seek to maintain a balance between public spending and tax revenues to maximize longterm economic growth. However, this model is criticized for failing to take into account factors such as externalities and inequalities, which can have a significant impact on the effectiveness of tax policy. Endogenous growth economists have shown that taxation can influence economic growth by affecting human capital accumulation, innovation, research, development and infrastructure investment. Tax policies that favor these factors can stimulate economic growth in the long term, while inadequate tax policies can slow it down. However, the extent of the impact of taxation on economic growth depends on many other economic and institutional factors, and economists do not all agree on the nature and importance of these effects. In recent decades, the relationship between taxation and economic growth has been studied in greater depth, and it has become clear that the issue is complex and that there Economies 2024,12, 201 4 of 18 are no simple answers. Economists have stressed the importance of designing and implementing tax policies that support long-term economic growth while preserving equity and macroeconomic stability. Engen and Skinner (1996) have researched the link between taxation and economic growth. Their main conclusion is that taxation can have a significant impact on economic growth but that this impact depends on the type of tax and how tax revenues are used. They found that taxes on labor and capital can reduce investment and employment, which can have a negative effect on economic growth. Conversely, taxes on consumption and property have less of a negative effect on growth. Engen and Skinner also found that the way tax revenues are used can have a significant impact on economic growth. For example, if tax revenues are used to finance inefficient public-spending programs, this can slow economic growth. On the other hand, if tax revenues are used to finance investment in education, infrastructure or research, this can stimulate economic growth. In summary, according to Engen and Skinner (1996), a well-designed tax policy can promote economic growth by avoiding taxes on labor and capital, making judicious use of tax revenues and reducing inefficient public spending. In his empirical analysis of the relationship between tax pressure and economic growth, Scully (2000) has conducted studies suggesting that high levels of tax pressure have a negative effect on economic growth. His research examines the relationship between taxation, economic growth and income inequality. He explores the optimal tax policy that can promote economic growth while reducing income inequality. The author argues that the tax system can have both positive and negative effects on economic growth and income inequality. While taxation can be used to finance public programs and services, it can also discourage work and investment, which can hinder economic growth. According to Scully (2003), optimal tax policy must balance the need for revenue with the need to promote economic growth and reduce income inequality. He suggests that a progressive tax system, which taxes higher incomes at a higher rate, can help reduce income inequality without significantly harming economic growth. However, the research also indicates that tax policies need to be carefully designed to avoid unintended consequences, such as reducing incentives to work or creating tax loopholes for the wealthy. Overall, Scully’s model highlights the complex relationship between taxation, economic growth and income inequality, and it suggests that optimal tax policy requires careful consideration of these factors. Lee and Gordon (2005) show that corporate tax rates are significantly negatively correlated with differences in economic growth rates between countries, even after controlling for other determinants of growth. In addition, fixed-effects regressions confirm that increases in corporate tax rates lead to lower future growth rates within countries. Arnold (2008) suggests that the composition of taxes has a significant effect on economic growth. More specifically, property taxes, particularly recurring taxes on real estate, appear to be the most growth-friendly, followed by consumption taxes and then personal income taxes. By contrast, taxes on corporate profits have the most negative effect on the GDP per capita. These findings suggest that a growth-oriented tax reform should favor property and consumption taxes over income taxes, particularly corporate taxes. The relationship between taxation and economic growth is a complex and multidimensional area. Tax policies, such as tax rates, the structure of taxes and their impact on incentives to work, invest and consume play an important role. Studies show that property and consumption taxes promote economic growth, while taxes on corporate profits have a negative effect on the GDP per capita. Edame and Okoi (2014) show that taxation has an inverse relationship with investment: a one percentage point increase in corporate income tax leads to a decrease in the level of investment in Nigeria. Furthermore, taxation is positively related to public spending. These findings underline the importance of balanced tax reform in fostering economic growth and development. Economies 2024,12, 201 5 of 18 Takumah and Njindan Iyke (2015) posit that the theoretical underpinnings of taxation and economic growth suggest negative and positive correlations between these two variables. The negative correlation is due to the distortions and suppression inherent in taxes, while the positive correlation is indirectly due to tax-financed spending. Alinaghi and Reed (2021) state that the relationship between taxation and economic growth is complex and varied. While high taxes can reduce incentives to work, invest and consume, they can also fund public goods and services that encourage economic development and citizen well-being. To promote sustainable growth, it is essential to design the tax system astutely so as to minimize the negative impact of taxation on growth while preserving tax revenues. To conclude this section, taxation, as a tool for financing public spending, plays an essential role in economic development. Theoretical models emphasize the potential impact of taxes on investment, innovation and long-term growth. However, the empirical reality is more complex, as it depends on the composition of taxes, their use and the specific context of each country. Effective tax reform, supported by sound public policies, is essential to promote long-term economic growth. Moreover, the relationship between tax pressure and economic growth is complex and can vary according to economic conditions, the structure of the economy and the quality of public spending. It is therefore important to consider the potential effects on growth when designing tax policies. 2.2. The Theoretical and Empirical Relationship between Economic Growth and Tax Pressure The relationship between tax pressure and economic growth is a controversial topic in economics. On the one hand, high tax pressure can dampen economic growth by reducing the availability of capital for productive investment and discouraging companies and individuals from earning and investing. On the other hand, lower tax pressure can stimulate growth by encouraging investment and consumption. The Laffer (1981) curve was modeled in 1974 by supply-side theorist Arthur Laffer and reflects the liberal conception of redistribution as inefficient since it reduces the incentive to work and invest. This disincentive can be explained by the role of compulsory deductions, the Laffer curve also shows the negative effect of a high rate of compulsory deductions. It is an old idea, as Smith (1776) states, “taxation can hinder industry in the sense of labor”. For this theory, Adam Smith and Jean Baptiste Say have already spoken on the basic premise of Ibn Khaldun’s writings, based on his idea that “too much tax kills tax. Adam Smith and Jean Baptiste Say said that “an exaggerated tax destroys the base on which it is levied, and that a reduction of the tax increases the revenue of the State, so that governments can be sure that it is better to be moderate”. Laffer then highlights a relationship between two variables, the first being tax revenues, and the second being the tax rate, i.e., the share of taxes or compulsory tax deductions in national wealth; in other words, the share of wealth deducted by the state in the broad sense. The curve shown in Figure 1illustrates the relationship between the tax rate and tax revenue. On the vertical axis (ordinate) is the tax revenue, while the horizontal axis (abscissa) represents the tax rate. Initially, a low tax rate, represented by point A on the curve, is associated with limited tax revenue. As the tax rate increases, tax revenue continues to rise until it reaches the optimal tax rate, marked by point E on the curve. Beyond point E, any further increase in the tax rate results in a decrease in tax revenue. Therefore, the same amount of tax revenue can be achieved at different levels of the tax rate. This relationship is explained by the following figure: It seems logical that if the tax rate is limited, the amount of tax revenue will be limited, so increasing the tax rate results in an increase in tax revenue, but the closer you get to the optimum tax rate, the more limited the increase in tax revenue. On the other hand, beyond this optimum rate, increasing the tax rate results in a drop in the tax revenue, with prohibitive rates and perverse effects. Economies 2024,12, 201 6 of 18 Economies 2024, 12, x FOR PEER REVIEW 6 of 19 Figure 1. Relationship between Tax Rate and Tax Revenue. Source: Wanniski (1978). It seems logical that if the tax rate is limited, the amount of tax revenue will be limited, so increasing the tax rate results in an increase in tax revenue, but the closer you get to the optimum tax rate, the more limited the increase in tax revenue. On the other hand, beyond this optimum rate, increasing the tax rate results in a drop in the tax revenue, with prohibitive rates and perverse effects. Firstly, households have less incentive to work and make an effort, so they are convinced that part of the wealth they have created is being taken away by the state. This can lead some households to immigrate to countries with lower taxes (tax havens), which is known as tax evasion. Secondly, entrepreneurs will move abroad in search of more lenient taxation (tax exits). The combination of these two factors will lead to a reduction in wealth and, therefore, have a negative impact on economic growth, if not cause a reduction in economic growth. The conclusion that can be drawn from this theoretical part is that tax pressure has a considerable impact on economic growth, but what is the impact of economic growth on tax pressure? A number of empirical studies of the relationship between fiscal pressure and long-term economic growth have subsequently been carried out. The results obtained differ from country to country, depending on the variables used and the methodology employed to model this relationship. Van Heerden and Schoeman (2008) assessed the optimal size of government in terms of revenue and expenditure for South Africa in order to maximize economic growth, using time-series data for the period 1960 to 2006. Van Heerden and Schoeman (2008) showed in their study that South Africa’s average tax pressure may be on the downward side of the Laffer curve. Consequently, the tax pressure has a negative impact on economic growth. Keho (2010) estimated the optimal tax pressure for the Ivorian economy using both the Scully and quadratic regression models using time-series data between 1960 and 2006. The results are not consistent with the proposition that higher tax rates are detrimental to growth. Takumah and Njindan Iyke (2015) explored the causal influence of tax revenues on economic growth in Ghana over the period 1986–2014. The results of this research provided strong evidence of a unidirectional causal flow of tax revenues to economic growth in Ghana. These results are in line with existing findings that taxation can influence economic growth. The policy implication is quite clear. Figure 1. Relationship between Tax Rate and Tax Revenue. Source: Wanniski (1978). T* represents the optimal tax rate that maximizes tax revenue. When the tax rate is below T*, an increase in this rate leads to higher tax revenues. However, beyond T*, tax revenues begin to decrease because higher rates may discourage economic activity and reduce the tax base. Point E, on the other hand, is the point of deviation on the Laffer curve where tax revenues start to decline as the tax rate exceeds T*. Firstly, households have less incentive to work and make an effort, so they are convinced that part of the wealth they have created is being taken away by the state. This can lead some households to immigrate to countries with lower taxes (tax havens), which is known as tax evasion. Secondly, entrepreneurs will move abroad in search of more lenient taxation (tax exits). The combination of these two factors will lead to a reduction in wealth and, therefore, have a negative impact on economic growth, if not cause a reduction in economic growth. The conclusion that can be drawn from this theoretical part is that tax pressure has a considerable impact on economic growth, but what is the impact of economic growth on tax pressure? A number of empirical studies of the relationship between fiscal pressure and long-term economic growth have subsequently been carried out. The results obtained differ from country to country, depending on the variables used and the methodology employed to model this relationship. Van Heerden and Schoeman (2008) assessed the optimal size of government in terms of revenue and expenditure for South Africa in order to maximize economic growth, using time-series data for the period 1960 to 2006. Van Heerden and Schoeman (2008) showed in their study that South Africa’s average tax pressure may be on the downward side of the Laffer curve. Consequently, the tax pressure has a negative impact on economic growth. Keho (2010) estimated the optimal tax pressure for the Ivorian economy using both the Scully and quadratic regression models using time-series data between 1960 and 2006. The results are not consistent with the proposition that higher tax rates are detrimental to growth. Takumah and Njindan Iyke (2015) explored the causal influence of tax revenues on economic growth in Ghana over the period 1986–2014. The results of this research provided strong evidence of a unidirectional causal flow of tax revenues to economic growth in Ghana. These results are in line with existing findings that taxation can influence economic growth. The policy implication is quite clear. Economies 2024,12, 201 7 of 18 Saibu (2015) estimated the optimal tax rates for South Africa using quarterly data for the period 1994–2016, employing an ARDL bounds testing approach. The results revealed that there is no significant relationship between taxation and economic growth over the period studied. Chokri et al. (2018) have attempted to study the relationship between the level of tax pressure and the growth rate for the Tunisian case with the estimation of the optimal tax rate between 1966 and 2015. The methodology adopted in this study consists of two stages. In the first stage, the optimal tax rate is determined using Scully’s static model and the quadratic model. The second stage focuses on the long-term relationship. This research is based on the results of the unit root and cointegration tests on the Scully model. The results of the study support the idea that taxes reduce growth beyond a certain threshold. The basic model yielded an optimal tax rate equal to 19.6% of the GDP. The use of time-series cointegration techniques enabled a long-term analysis to be carried out, yielding an optimal tax rate of 14% of the GDP. The current tax rates are well above these levels, which explains the disappointing performance in terms of growth and taxation. Koatsa et al. (2021), in their work, tried to determine whether tax pressure has an impact on the economic growth rate in the Lesotho context and to estimate an optimal tax pressure over the period 1988–2017. The ARDL bounds test framework was used to establish cointegration and determine whether there is a long-term relationship between tax pressure and economic growth. The results established a cointegration relationship between economic growth rate and fiscal pressure, with unidirectional causality running from economic growth to fiscal pressure. Granger causality revealed no causal effect between fiscal pressure and economic growth in Lesotho. The results show that tax policy has had no significant influence on economic activity in Lesotho over the period studied. However, the results of the error correction model indicate a long-term relationship between the economic growth rate and tax pressure in Lesotho, with a long-term equilibrium adjustment speed of 100% following a short-term shock. Based on these studies, we can see that there is still no consensus on the relationship between tax pressure and economic growth. An initial series of studies by Van Heerden and Schoeman (2008) in South Africa and Keho (2010) in Côte d’Ivoire found that tax pressure has a negative impact on economic growth, while a second series of studies by Takumah and Njindan Iyke (2015) in Ghana found that taxation can influence economic growth, and a third study by Saibu (2015) in South Africa confirmed the findings of Van Heerden and Schoeman (2008) and showed that there is no significant relationship between tax pressure and economic growth. Chokri et al. (2018) found that in Tunisia, an increase in tax rates explains a disappointing performance in terms of taxation and economic growth. The latest series of studies by Koatsa et al. (2021) in Lesotho showed that in the short-term, tax pressure does not influence economic growth, but on the basis of the error correction model, there is a long-term relationship between tax pressure and economic growth. This last study is like the objective of this empirical work, which is to study the impact of fiscal pressure on long-term economic growth in Morocco. Assumptions: H0. Tax pressure has an impact on long-term economic growth. 2.3. Tax Pressure and Economic Growth in Morocco The Moroccan government’s tax revenues come from a number of taxes. However, the structure of this revenue shows that Value Added Tax (VAT), Income Tax (IC), Corporation Tax (CT), Registrations and Stamps and Internal Consumption Tax (ICT) are the main sources of tax revenue for the state (Figure 2). Economies 2024,12, 201 8 of 18 Economies 2024, 12, x FOR PEER REVIEW 8 of 19 Figure 2. Breakdown of tax revenues in Morocco by the type of tax between 2000 and 2020. Source: The Treasury and External Finance Department of the Moroccan Ministry of the Economy and Finance. Revenue excluding VAT from local authorities, as mentioned by (Omar and Aya 2021). According to Figure 2, VAT, CT, IT and registration fees are the main tax revenues in the structure of state tax revenues, with an average of 26.53% for VAT revenues, 22.1% for CT, 19.9% for IT and 14.77% for registration and stamps between 2000 and 2020. During the period 1990–2020, the tax pressure and the growth rate of the real GDP as an annual percentage in Morocco have undergone profound changes according to data collected from the International Monetary Fund, as shown in the following graph: During the period 1990–2000, Morocco undertook a series of political, social, financial and economic reforms, as well as implementing the Framework Law on taxation and reforming the national tax system through the Finance Acts during this period, with the aim of catching up on accumulated delays in economic and social development. According to Figures 3 and 4, tax pressure in Morocco underwent various changes over the period 1990–2000, decreasing by 0.48% from 21.26% in 1990 to 20.78% in 2000, i.e., an average tax pressure of 20.15% between 1990 and 2000, with an economic growth rate of 3.15% over the same period. 22.50% 17.90% 20.60% 17.40% 6.40% 13.40% 2.00% 28.50% 28.60% 24.60% 18.90% 13.10% 7.30% 6.10% 1.50% 23.80% 28.00% 22.70% 20.70% 13.80% 8.40% 4.80% 1.60% 20.20% 28.30% 25.00% 20% 13.60% 7.40% 4.30% 1.40% 13.80% 29.00% 23.70% 20.20% 13.50% 7.20% 4.60% 1.70% 7.40% 29.00% 23.10% 19.90% 14.10% 7.10% 4.60% 2.30% 4.60% MEAN 2000-07 MEAN 2008-15 2016 2017 2018 2019 2020 MEAN 2016-20 VAT CT IT ICT Reagistrations and stamps Customs duties Figure 2. Breakdown of tax revenues in Morocco by the type of tax between 2000 and 2020. Source: The Treasury and External Finance Department of the Moroccan Ministry of the Economy and Finance. Revenue excluding VAT from local authorities, as mentioned by (Omar and Aya 2021). According to Figure 2, VAT, CT, IT and registration fees are the main tax revenues in the structure of state tax revenues, with an average of 26.53% for VAT revenues, 22.1% for CT, 19.9% for IT and 14.77% for registration and stamps between 2000 and 2020. During the period 1990–2020, the tax pressure and the growth rate of the real GDP as an annual percentage in Morocco have undergone profound changes according to data collected from the International Monetary Fund, as shown in the following graph: During the period 1990–2000, Morocco undertook a series of political, social, financial and economic reforms, as well as implementing the Framework Law on taxation and reforming the national tax system through the Finance Acts during this period, with the aim of catching up on accumulated delays in economic and social development. According to Figures 3and 4, tax pressure in Morocco underwent various changes over the period 1990–2000, decreasing by 0.48% from 21.26% in 1990 to 20.78% in 2000, i.e., an average tax pressure of 20.15% between 1990 and 2000, with an economic growth rate of 3.15% over the same period. The first “Taxation Assizes”, held in 1999, provided an opportunity to reflect on the mechanisms for simplifying, streamlining and harmonizing the tax system. Numerous reforms were introduced by successive Finance Acts from 2000 to 2011, resulting in a series of measures to simplify, rationalize and harmonize the tax system, including the reform of registration duties in 2004, the start of VAT reform in 2005, the consolidation of tax texts into a single volume, the General Tax Code published in 2007, and the reform of the income tax scale in 2009, adding to the financial crisis that hit the world in 2007 and 2008. Over the period 2000–2010, the rate of tax pressure rose sharply from 20.78% in 2000 to 24.78% in 2010, an increase of 4 points, with the highest rate recorded in 2008 at 28.88%, while the geometric average rate of tax pressure over the period 2000–2010 was 23.24%, an increase of 3.09% on the 1990–2000 period, with an average economic growth rate of 4.68%. Despite Economies 2024,12, 201 15 of 18 inadequate control. These difficulties hamper the growth of direct tax resources, prompting the state to concentrate on indirect taxation, and consequently increasing the problem of failing to harness taxation to promote economic growth. Economies 2024, 12, x FOR PEER REVIEW 15 of 19 C −0.4035 0.7041 −0.5731 0.2071 0.2831 0.7315 R-squared 0.7788 0.1444 Source: Authors (our calculations based on Eviews 12). To interpret the results of the VAR (2) model, we need to test its econometric robustness. According to Table 4, the inverse test of the roots of the characteristic polynomial is used to test the stationarity of the model, where all the roots must lie inside the unit circle. We note that all the eigenvalues lie within the unit circle, as illustrated in Figure 6. Thus, the VAR (2) model is stationary, and the variables follow a normal distribution. In this respect, we can conclude that the model is valid and ready to be interpreted. Furthermore, if we examine causality in the Granger sense, we can see the following. Figure 6. VAR stationarity test (2). Source: Authors (our calculations based on Eviews 12). Indeed, the impact of tax pressure on economic growth has not been verified. This can be explained by the specific nature of the Moroccan tax system. The succession of reforms to the tax system over the 1990–2020 study period reflects the government’s determination to adapt the tax policy to the country’s economic evolution. These reforms generally follow international trends and seek to make taxation more growth friendly. However, despite the progress made, the Moroccan tax system continues to suffer from a number of constraints, including the superiority of indirect taxes over direct taxes, due to the size of the informal economy, fraud and tax evasion, low tax rates, exemptions for certain sectors, and inadequate control. These difficulties hamper the growth of direct tax resources, prompting the state to concentrate on indirect taxation, and consequently increasing the problem of failing to harness taxation to promote economic growth. In this respect and based on the results of the VAR model and the causality test presented in Table 5, we can see that several determinants can impact economic growth in Morocco, apart from tax pressure, and that the value of real GDP is influenced by its past values. Over the period 1990–2020, the Moroccan economy was affected by structural transformations and economic crises, which led to changes in the pace and level of economic growth. The 2008–2009 financial and economic crisis impacted Morocco’s economic growth for several years, with the deterioration in economic activity in Morocco’s partner countries transmitted with a time lag through four main channels: foreign demand addressed to Morocco, tourism receipts, transfers from Moroccans living abroad (MLA), and foreign direct investment (FDI). Table 5. Causality test. Null Hypothesis F-Statistic Prob DPIB does not Granger cause DPF 1.4997 0.2434 DPF does not Granger cause DPIB 0.1893 0.8288 Source: Authors (our calculations based on Eviews 12). -2 -1 0 1 2 3 -4 -3 -2 -1 0 1 Figure 6. VAR stationarity test (2). Source: Authors (our calculations based on Eviews 12). In this respect and based on the results of the VAR model and the causality test presented in Table 5, we can see that several determinants can impact economic growth in Morocco, apart from tax pressure, and that the value of real GDP is influenced by its past values. Over the period 1990–2020, the Moroccan economy was affected by structural transformations and economic crises, which led to changes in the pace and level of economic growth. The 2008–2009 financial and economic crisis impacted Morocco’s economic growth for several years, with the deterioration in economic activity in Morocco’s partner countries transmitted with a time lag through four main channels: foreign demand addressed to Morocco, tourism receipts, transfers from Moroccans living abroad (MLA), and foreign direct investment (FDI). Table 5. Causality test. Null Hypothesis F-Statistic Prob DPIB does not Granger cause DPF 1.4997 0.2434 DPF does not Granger cause DPIB 0.1893 0.8288 Source: Authors (our calculations based on Eviews 12). In the same context, 2020 will be marked by an unprecedented economic recession. As a result, the rate of economic growth slowed down this year, affecting the years that followed, notably 2021 and 2022. We can therefore conclude that several factors other than fiscal pressure influence shortand long-term economic growth, and that the evolution of the real GDP growth rate depends on past values. The VAR model assumes that the series are stationary. In this case, the series used are non-stationary. By differentiating them sufficiently, we can stationarize them. This operation has its limits, however, particularly if the variables share one or more stable long-term relationships. In this case, using the Engel–Granger cointegration test, as detailed in Table 5, we have tested the stationarity of the residuals resulting from this estimation. If they are stationary, then there is a long-term relationship; otherwise, the procedure stops here. The analysis shows that the null hypothesis of the unit root is rejected, as detailed in Table 6. The residuals of a long-term relationship are stationary in nature, confirming the existence of a cointegration relationship between the growth rate of real GDP and tax pressure. However, the existence of a long-run relationship paves the way for the estimation of the error-correction model. According to Granger’s representation theorem, any cointegrated system implies the existence of an error-correcting mechanism that prevents variables from deviating too far from their long-term equilibrium. Economies 2024,12, 201 16 of 18 Table 6. Residual stationarity test. T-Statistic Prob Augmented Dickey–Fuller test statistic −4.8586 0.0000 Source: Authors (our calculations based on Eviews 12). The coefficient associated with the force of the return to equilibrium is significantly negative ( − 0.3939%), as shown in Table 7. This indicates the presence of an error-correction mechanism. The mechanism reflects the convergence of the GDP series trajectories toward the long-term target. Specifically, following a shock, the GDP response variable returns to equilibrium at a rate of 39%, meaning that the shock is fully resolved after approximately two years and six months (1/0.3939 = 2.53). Table 7. Vector error-correction model using Granger’s approach. Variable Coefficient Std. Error t-Statistic Prob C 0.2013 0.1647 1.2222 0.2405 DLGPF (−1) −0.0883 0.2313 −0.3820 0.7078 DLPF (−1) 3.4894 2.7793 1.2555 0.2285 DLPF 0.0800 2.8377 0.0282 0.9779 RESID LT (−1) −0.3151 0.1237 −2.5470 0.0223 R-squared 0.6059 C 0.2563 0.1477 1.7350 0.0981 RESID LT (−1) −0.3939 0.0748 −5.2630 0.0000 R-squared 0.5807 Source: Authors (our calculations based on Eviews 12). This result was highlighted by Widmalm (2001), according to whom the share of public spending coming from tax revenues contributes to improving productivity and consequently economic growth. Keho’s empirical work also confirms these results. He examined the problem of tax levies on economic activity in Côte d’Ivoire. Using cointegration and causality tests on annual data covering the period from 1960 to 2006, the author obtained long-term evidence of a relationship between taxation and GDP. Thus, he asserted that taxation does not hinder growth in the long term and that tax revenues are positively correlated with the GDP and its components. The results of the two approaches—the vector autoregression model (VAR) and the vector error correction model (VECM)—reveal the existence of a relationship between tax pressure and economic growth over the period studied. However, this relationship remains less significant and asserts that basing long-term growth on its past values and on the tax pressure remains insufficient, as the effect of taxation is difficult to quantify and the very nature of the dependent variable requires consideration of other determinants, including investment, savings, the tax structure and so on. 5. Conclusions This study contributes to the literature by documenting the impact of tax pressure on long-term economic growth in Morocco, thus providing a framework for future research into this complex relationship. Using econometric models such as VAR and VECM, it highlights the differential impact of past values on the real GDP growth and of tax pressures on current growth. The confirmation of these results in relation to previous studies and national practices underlines their contextual relevance. The implications of this study are of interest to researchers and practitioners alike. For researchers, it provides a basis for a deeper understanding of the mechanisms that create the relationship between tax pressure and long-term economic growth and paves the way for a broadening of the theory on the factors that create the relationship between tax Economies 2024,12, 201 17 of 18 pressure and long-term economic growth, such as investment, savings and tax structure. For practitioners, based on the results obtained, it is suggested that an optimized tax structure be adopted that encourages investment and innovation while regularly evaluating public spending to ensure its contribution to economic growth, particularly in the fields of education and infrastructure. Real implementation of the principles of the new tax policy reform is needed to combat tax evasion and avoidance, thereby increasing revenues without raising tax rates. It is also suggested to analyze tax progressivity to ensure a fair distribution of the tax pressure and to emphasize transparency and accountability in tax administration. Finally, before implementing new tax measures, it would be prudent to carry out impact studies to assess their potential consequences for economic growth and social equity. It is important to recognize that the methodological choices made in this study, based on the use of specific econometric models such as VAR and VECM, may influence the generalization of the results to other contexts. Although the quantitative nature of the study offers analytical rigor, it may overlook certain qualitative aspects of the relationship between tax pressure and economic growth. As a result, it is necessary to be cautious when extrapolating the conclusions to other situations, considering the economic, fiscal and political specificities of each country. To overcome these limitations, a mixed approach integrating quantitative and qualitative analyses could be beneficial. By exploring the implications of the study design and methodology for the generalizability of the results, and by providing examples of additional contexts, this study can contribute to a better understanding of the underlying mechanisms and policy implications of the relationship between fiscal pressure and economic growth. It is essential to recognize that recent global events such as the COVID-19 pandemic and geopolitical tensions are having a significant impact on national economies. These events may disrupt the long-term relationship between fiscal policy and economic growth in Morocco more than in other, similar contexts. However, this point deserves to be developed further in future research to provide a comprehensive view of the impact of macroeconomic and geopolitical challenges on the fiscal determinants of economic growth. This study suggests promising avenues for future research. It invites further exploration of the determinants of the relationship between tax pressure and long-term economic growth, such as investment, savings and tax structure. In addition, the proposal of an econometric method for determining the optimal level of tax pressure will pave the way for further research. These recommendations provide valuable guidance for researchers wishing to explore these aspects in greater depth and for decision-makers looking for practical solutions to improve long-term economic growth in Morocco. Author Contributions: Conceptualization, N.B., S.M., M.O. and A.B.; Methodology, N.B., S.M., M.O. and A.B.; Software, N.B., S.M. and M.O.; Validation, M.O. and A.B.; Formal analysis, N.B., S.M., M.O. and A.B.; Resources, N.B., S.M., M.O. and A.B.; Data curation, N.B., S.M., M.O. and A.B.; Writing—original draft, N.B., S.M., M.O. and A.B.; Writing—review & editing, M.O. and A.B.; Visualization, N.B., S.M., M.O. and A.B.; Supervision, M.O. and A.B. All authors have read and agreed to the published version of the manuscript. Funding: This research received no external funding. Informed Consent Statement: Not applicable. Data Availability Statement: Data is available at International Monetary Fund for tax pressure and the real GDP growth rate (https://www.imf.org/en/Countries/MAR, accessed on 28 March 2022), Research and Financial Forecasting Department (2008), Elbaggari (2023). Conflicts of Interest: The authors declare no conflicts of interest. References Afifi, Mehdi, and Abdelillah Ramdaoui. 2019. Pression fiscale optimale et croissance économique au Maroc. Revue Du Contrôle, de La Comptabilitéet de l’audit 3: 544–58. Economies 2024,12, 201 18 of 18 Alinaghi, Nazila, and W. Robert Reed. 2021. Taxes and Economic Growth in OECD Countries: A Meta-analysis. Public Finance Review 49: 3–40. [CrossRef] Arnold, Jens Matthias. 2008. Do Tax Structures Affect Aggregate Economic Growth? Empirical Evidence from a Panel of OECD Countries. 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