Structural Stability of the Relationship between Indirect Taxes and Government Expenditure in Nepal: Implications for Fiscal Policy

This study uses time series data of Nepal from fiscal years 1974/75 to 2017/18 examine the dynamics relationship between indirect taxes and government spending. The study’s main objective is effect size Value Added Tax (VAT), excise, customs duties in predicting Nepal’s budget deficit. for purpose were obtained Government Nepal, Ministry Finance. used a retrospective methodology. first checked stationarity by employing Augmented Dickey-Fuller Test, then link variables was determined using multiple regression analysis based on ordinary least squares. results showed that charges did not affect spending while value-added excise had statistically significant positive impact. structural stability parameter evaluated utilising CUSUM CUSUMSQ procedures. no evidence misspecification or instability within period predicted model. residuals follow normal distribution with serial correlation, heteroscedasticity, multicollinearity issues. implication finding should exercise restraint prioritise collection taxes. Additionally, it recommends reducing new businesses expanding range products subject VAT.