Impact of taxes on the 2030 agenda for sustainable development: Evidence from Organization for Economic Co-operation and Development (OECD) countries

Multiple ecological and socioeconomic problems have occurred worldwide, raising the awareness of sustainability. This study aims to examine the impact of taxes on Sustainable Development Goals (SDGs) in the context of Organization for Economic Co-operation and Development (OECD) countries. This research used effective average tax (EAT), tax on personal income (TPI), tax on corporate profits (TCP), and tax on goods and services (TGS) as the variables of taxes, and employed secondary data from 38 OECD countries covering 2000–2021. The study also used Breusch-Pagan Lagrange Multiplier (LM), Pesaran Scaled LM, Bias-Corrected Scaled LM, and Pesaran Cross-sectional dependence (CSD) tests to analyze the existence of cross-sectional dependency. Then, we established the stationarity of variables through second-generation panel unit root tests (Cross-sectional Augmented Dickey-Fuller (CADF) and Cross-sectional Im, Pesaran, and Shin (CIPS)), and confirmed the long-run cointegration of the variables by using second-generation panel cointegration test (Westerlund cointegration test). The results showed that EAT, TPI, TCP, and TGS are positively associated with SDGs. However, the change in TPI has a smaller effect on SDGs than the change in EAT or TCP or TGS. The result of panel causality indicated that EAT, TPI, and TGS have a unidirectional causal relationship with SDGs. The study also found that TCP has a bi-directional causal relationship with SDGs. Moreover, the finding indicated that the OECD countries need to focus on tax policies to achieve the 2030 Agenda for Sustainable Development. This study is based on the theory of optimal taxation (TOT), which suggests that tax systems should be designed to maximize social welfare. Finally, we suggests the importance of taking a comprehensive approach for the managers and policy-makers when analyzing the impact of taxes on SDGs.