Tax Revenue, Institutional Quality, and Sustainable Growth in Afghanistan (1996–2024): A Dual Source ARDL–ECM Analysis

Abstract

This study examines whether domestic revenue mobilization is associated with sustainable economic growth in Afghanistan and whether institutional quality moderates that relationship in a fragile and conflict-affected setting. A reconciled dual-source annual dataset for 1996–2024 is constructed by harmonizing World Development Indicators with official Afghan fiscal and macroeconomic series, with observation-level provenance flags documenting source priority and reconciliation decisions. An autoregressive distributed lag (ARDL) bounds-testing framework and its error-correction representation are estimated to accommodate mixed integration orders, structural breaks, and a small annual sample. Political transitions are captured using regime-segmented indicators interpreted relative to the Taliban I baseline regime. Bounds tests support a stable long-run relationship between real GDP growth, tax revenue, institutional quality, and standard controls. The error-correction term indicates rapid convergence to equilibrium (ECT ≈ −1.24). In the long run, the tax revenue coefficient is positive but imprecisely estimated (1.54; p = 0.284). The interaction between tax revenue and institutional quality is positive and economically large (9.68; p = 0.180), suggesting that stronger institutions increase the growth payoff to taxation, although statistical support is indicative rather than definitive. Overall, the findings imply that revenue-led growth strategies in Afghanistan and comparable fragile contexts are more likely to be effective when paired with institutional improvements that enhance budget credibility, reduce leakages, and strengthen policy predictability and compliance.