Tax Mix, Tax Reform and Economic Growth in Morocco: A Quantitative Analysis

The current economic situation and its effects on the situation of public finances thus place the tax system, even more than before, at the heart of economic and social policy debates. This debate can only be fruitful and lead to relevant recommendations on the basis of a global diagnosis of this system, both in terms of its structure and legislative construction, as well as in terms of its day-to-day practice and management by the administration and taxpayers, and its perception by all parties concerned. The aim is to establish a fairer tax system in which each taxpayer pays his taxes according to his ability to pay and an effective tax system to promote economic growth.


Introduction
In the economic context of our country, today's tax issues can be framed as follows: (i) How can government revenues be increased without harming, or with as little harm as possible, to economic growth? (ii) Can social equity and economic efficiency be reconciled through the revision of tax rates?
(iii) How can the desired progressiveness of the tax system be ensured and the tax base of all taxes be broadened? (iv) Can the overall rate of tax pressure recorded per tax be considered sustainable? (v) Is it possible to develop a tax policy that promotes economic growth and how? In other words, what tax system seems to provide an incentive to work, save, invest and thus accumulate capital? And (vi) What types of tax incentives should be put in place to improve total factor productivity (TFP), stemming from improvements in the quality of human capital, innovation and scientific research?
In short, the aim is to establish a fairer tax system where each taxpayer pays taxes according to his or her ability to pay and an efficient tax system to promote economic growth. scarcity of budgetary resources and the growing need to finance public spending, the question of the structure of taxation becomes paramount. In the context of tax system reforms, policymakers are interested in knowing the types of taxes that are least unfavorable to economic growth. International organizations (e.g., the OECD) on the basis of a number of studies are advocating reforms to replace income tax revenues with revenues from consumption and wealth taxes. In fact, some countries have made tax reforms in this direction.
Our paper is a contribution to this debate on the tax structure and per capita income. In our work, the tax structure is summed up by the ratio of indirect tax revenues to direct tax revenues.
Moreover, this note will be structured as follows. The first point presents literature review. Second is dedicated to the Overview of the Moroccan tax system. The third has the empirical econometric models in data of panel and the results of estimate considering the theory remains ambiguous on the effects of these aspects. The last point makes recommendations for a tax system with the service of the economic growth.

Literature Review
The empirical literature on the link between fiscal policy and economic growth is particularly interested in two issues. The first relates to the link between the total level of tax revenues (Easterly & Rebelo, 1993;Felster & Henrekson, 2001)) or public spending (Grier & Tullock, 1987; as well as Barro, 1990Barro, , 1991 on the one hand and per capita income on the other side. The second question concerns the link between the tax structure and per capita income and/or economic growth. The literature on this second issue is less dense and includes more recent work. The debate focuses in particular on the type of direct or indirect taxes that are conducive to economic growth. Some work goes so far as to establish a hierarchy of taxes that are least unfavourable to growth.
Rather than reviewing the full literature on this issue here, this section focuses on a selection of research that links economic growth performance to budgetary variables.
Early studies showed a link between fiscal structure and economic growth. These studies used traditional regressions such as OLS panel data. They assumed identical slopes for all countries in the growth equation.

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Published by SCHOLINK INC. economic growth and that taxes that do not have this effect (consumption taxes) do not reduce economic growth. Widmalm (2001) analyzes the effects on economic growth of changes in the tax structure for an unchanged level of revenue. His work covered 23 OECD countries over the period 1965-1990 concludes, on the one hand, that the proportion of tax revenues from the taxation of personal income is negatively correlated with economic growth and that, on the other hand, consumption taxes are favourable to economic growth. Arnold (2008) introduced tax structure indicators in a set of growth regressions per panel for a sample of 21 OECD countries over the 1971-2004 period and found that property taxes are most favourable to followed by consumption taxes, followed by personal income taxes. In particular, the author finds no compelling evidence in favour of consumption taxes over income taxes, nor personal income taxes in relation to corporate income taxes. The only robust result appears to be that transfers of tax revenues to property taxes are associated with a higher level of per capita income over the long run.
Bernardi (2013) conducted an aggregate analysis of tax trends in euro area member countries (EA-17) and a country-by-country disaggregated analysis for the period 2000-2014. He found that the gains from a tax transfer (from direct taxes to indirect taxes) do not appear to be as simple as previous research claimed. Tanchev (2016) conducted an econometric study using the OLS method to assess the impact of personal income tax on economic growth in Bulgaria for the period 2004-2012, and found proportional relationship between progressive taxation and economic growth.  Arnold et al. (2011) to replicate the short-term results that did not appear in Arnold et al. (2011). They confirm the long-term negative link between tax revenues and GDP but do not find the link between the tax structure and the long-term pib. The authors then extend the sample to 34 OECD countries for the period 1995 and 2014 to include the effects of the economic crisis. Their results do not confirm either the negative relationship between tax revenue sparing and GDP per capita or the positive relationship between the indirect/direct revenue ratio and the per capita GDP.

Moroccan Tax System: Current Situation
Since the middle of the Eighties, in practice, the Moroccan taxation entered a reform process continuous. These reforms are installation with an aim of carrying out a better effectiveness and a harmonization with the international standards. The awaited key objective of these reforms is the development of a system tax modern, coherent, efficient and more equitable. However, these objectives were not achieved and the tax system lost of legibility. The multiple reforms led well off interpretation of the texts of tax revisions between the administration and the taxpayers. These continuous reforms made the taxation Moroccan, today, very complex for the private investors and constituted an obstacle with the expansion of their activity.
If it is allowed that the central role of the taxation is undoubtedly to generate, of the most neutral manner and with less possible distortions, receipts necessary to the budget of the State, the taxation can fulfill its budgetary role only if, at the same time it is not seen laying down other objectives, generally contradictory. The multiplication of the exemptions and the derogatory modes, for example, noted these last years in Morocco go against these principles. These tax incentives, indeed, can cause only distortion and ineffective allowance of the investments and the resources.
Moreover, it is noted that tax justice is absent since the weight of the taxation did not weigh in a way balanced on the taxpayers: the weight of the Corporation tax (IS) is supported by a minority of companies and the income tax (IR) rests primarily on the incomes in the form of wages in the formal sector.
This tax injustice appears in what follows (Source DGI and DEPF data (   Indeed, the examination of the evolution of the revenues from taxes (Table 3) reveals a progression from one year to another, that is to say an average annual growth of 4.1% during the period 2010-2018, carried at the same time by the direct taxes and the indirect taxes, which recorded an average annual growth of 3,5% and 5,6% respectively.

Direct Taxes
The direct taxes amounted to 96,6 billion dirhams in 2018 (Note 1), that is to say a rise of 2,6% compared to the previous year. This amount accounts for 35,7% of the revenues from taxes.
In terms of progression, the direct taxes fell under a bullish tendency since the years 2009. However, as from 2010, the direct taxes knew a clear deceleration of their growth rate, passing from 11,7% to 3,5% In terms of contribution, the share of the IS in the total revenues from taxes passed from 27,9% to 24% during the two above mentioned periods. This tendency to improvement, is ascribable with the good behavior of the results of certain large contributors (the OCP, BAM, IAM…) and with the efforts of the Administration control tax incentive.
With the title of 2018, this share was established in 23,5% range by the companies of the real sector

Indirect Taxes
Since its installation in 1986, the profits resulting from the VAT remain dominating in the total revenues from taxes, it constitutes the first funding source of the State and the local government agencies. The re-entries for this reason bordered 65,7 billion dirham's, excluding VAT of the local government agencies.
Indeed, its contribution to the formation of the revenues from taxes passed from 25,6% between 2007-2009to 30,2% between 2010-2018. This supplement of shares is due to the efforts of Morocco to make this tax the tax pivot of its tax system, because of its very broad potential plate. This The product of the TIC is drawn mainly by the TIC (See Table 4) on the oil products. As for the TIC on the tobaccos, its evolution remains dependent on the movements of smuggling and the variations of the prices whose impact on the structure of consumption is important.  Source: DTFE and DEPF data.

Methodology of the Analysis and Results
As Gwartney and Lawsan (2006)  Using the index of the proportioning of the taxes between the income taxes of the private individuals and the excise duties and the explanatory variables of the economic growth, it is possible to appreciate the correlation and the relevance of the effect of the tax index on the economic growth (see Table 5). In addition to the model specified for Morocco, three other models in econometrics of data of panel were   The ratio of a tax in proportion of another makes it possible to collect the relative distribution of the two types of taking away, making it possible to easily interpret the effects of the passage from one tax to another. If the index is lower than 1, it means that there is more use of consumption taxes.
Conversely, if the index is higher than 1, it means greater use of factor income taxes.

Conclusion and Perspectives
More generally, few taxes are well suited to the pursuit of equity goals. Spending policies are often a much better means of achieving these objectives, although the capacity to target spending is very limited. While the scope for pursuing distributional objectives through expenditure targeting should not be taken for granted, experience has clearly shown that the primary function of taxation should normally be to raise the necessary revenues with the least possible disruption to economic activity.
It is well known that the Moroccan tax system relies heavily on income taxation. Morocco is clearly a large user of income tax compared to the average of the OECD where the weight on consumption tax is generally higher. However, based on data from 84 countries, this study shows that over the period of the Over the period 1983 to 2018 the tax mix had an impact on GDP per capita growth.
A revision of the tax mix that would increase the consumption tax and proportionately reduce personal income tax emerged as the most favorable for economic growth.
Morocco will have to continue on this path in order to stimulate economic growth. In view of its budgetary deficit, which will have the effect of slowing down our expected economic growth, a review of the tax mix is one of the solutions to be considered by the Moroccan government to increase economic growth and the standard of living of our population.
From a political economy perspective, the main challenge is to build consensus around a comprehensive tax reform. A fundamental tax reform is never an easy task, especially when, as in Morocco, it must increase revenues. In particular, the recommendation to lower corporate tax rates, while raising consumption tax rates and broadening the personal income tax base, may be unpopular. It is therefore important to underline the fact that corporate taxes are borne not only by shareholders, but also by employees, through lower wages and, potentially, lower employment rates, which may suggest that lower corporate taxes are likely to boost household income and consumption.
Indeed, a study for the United Kingdom found that workers bear about half of the corporate tax burden in the short run and all of it in the long run (Arulampalam, Devereux, & Maffini, 2007).
The implementation of a comprehensive tax reform requires clear communication of the plan and its objectives, based on transparent and well-defined principles, so that taxpayers understand the government's intentions. This communication effort should focus on the following points: Before asking citizens to pay more taxes, the government must demonstrate that it wants to improve the efficiency of spending. Further efforts in this direction, such as a continued reduction in public investment, a planned reduction in the public wage bill and a market-based approach to evaluation, would reduce social opposition to tax increases.
As far as possible, reform should treat different segments of the population equally. In particular, it is essential that the broadening of the tax base should also include the self-employed, so as not to place an unfair burden on employees.
The proposed tax reform should take into account new equity concerns, e.g., by introducing a tax credit on income from professional activities and by strengthening inheritance tax and property taxation. Such an approach would prevent the authorities from increasing personal income tax rates, which are rather a disincentive to human capital formation and labour suppl.