3.4.3 Model 3
We can also show or establish the relationship between Gross Domestic product (GDP) and Total Revenue
(TREV) from tax. The functional relationship and the resultant model using the OLS regression method, we have:
Functional relationship
GDP = F(VAT) …………………………(5)
Converting this to linear or stochastic model we have:
GDP = b0 + b1 VAT + e …………………..(6)
Where b0 and b1 are constant GDP = Gross Domestic Product VAT = Value Added Tax
e = Error Term or stochastic term Apriori expectation: b1 >0