The Role of Tax Incentives and Refund Mechanisms in Promoting Export Growth in Developing Economies: Evidence from Pakistan

Abstract

Export growth is a cornerstone of economic advancement in developing economies, where governments employ various fiscal instruments to stimulate competitiveness and attract foreign exchange. Among these, tax incentives and refund mechanisms play a pivotal role in enhancing exporters’ performance by reducing production costs, improving liquidity, and fostering trade efficiency. This study investigates the influence of tax incentives and refund mechanisms on export growth in Pakistan, a developing country striving to overcome structural barriers to trade expansion. Grounded in fiscal incentive and export‐led growth theories, this research adopts a quantitative approach using survey data collected from export-oriented manufacturing firms across Punjab and Sindh provinces. The findings reveal that both tax incentives and efficient refund mechanisms significantly and positively affect export growth, primarily through improved cash flow, reduced compliance burdens, and enhanced firm competitiveness. However, delays in refund processing and policy inconsistency weaken the overall effectiveness of these fiscal tools. The study highlights the need for integrated fiscal reforms, digital refund systems, and targeted incentive structures to ensure sustained export growth. The results offer practical implications for policymakers, tax administrators, and exporters, emphasizing the importance of a transparent, automated, and sector-specific incentive regime to align national fiscal policies with international trade competitiveness.