Abstract
Of late, the pattern of tax revenues and its nexus with economic growth in developing countries become an increasing concern for policy framers and researchers. Since tax revenue is one of the important sources of government revenue, a tax policy assumes significance as a vehicle for a viable and long-term source of revenue and economic growth. Similarly, economic growth has augmenting effects on the tax revenue of a country. This study investigates tax responsiveness to the changes in gross domestic product in Ethiopia in the period 1981–2014. It mainly focuses on the components of agricultural tax revenue : agricultural income tax and land use fee. In addition, it also studies personal income tax and business profit income. Understanding and analyzing the level of sensitivity of tax revenue to discretionary policy measures and GDP are essential in formulating fiscal policy . The empirical evidence on Ethiopia suggests that the trends in agricultural income tax and land use fee collection are highly inconsistent. Agricultural income tax and land use fee are not buoyant, indicating that the growth of the agricultural sector has no statistically significant impact on agricultural income tax buoyancy. However, personal income tax revenue, business profit revenue, and total direct tax revenue are responsive to changes in non-agricultural GDP in Ethiopia. In light of these findings, some policy interventions for improving tax revenue are suggested.
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Notes
- 1.
Birr is the currency used in Ethiopia. Currently, one (1) USD is equal to about 22.24 birr.
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Annexure 1
Annexure 1
ADF, KPSS, and PP unit root test results
ADF test | KPSS test | PP test | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Variables | Critical value | Test statics | Lag order | Critical value | Test statics | Lag order | Critical value | Test statics | Lag order | ||||||
% | 1 | 5 | 10 | 1 | 5 | 10 | 1 | 5 | 10 | ||||||
Agricultural GDP | −4.38 | −3.6 | −3.24 | −2.025 | 12 | 0.216 | 0.146 | 0.119 | 0.633 | 3 | −23.524 | −18.508 | −15.984 | −2.935 | 3 |
Agricultural income tax | −4.38 | −3.6 | −3.24 | −4.817 | 12 | 0.216 | 0.146 | 0.119 | 0.16 | 3 | −23.524 | −18.508 | −15.984 | −22.573 | 3 |
Land Use fee | −4.38 | −3.6 | −3.24 | −3.658 | 12 | 0.216 | 0.146 | 0.119 | 0.116 | 3 | −23.524 | −18.508 | −15.984 | −18.661 | 3 |
Total Agr tax | −4.38 | −3.6 | −3.24 | −6.739 | 10 | 0.216 | 0.146 | 0.119 | 0.108 | 3 | −23.524 | −18.508 | −15.984 | −20.679 | 3 |
Non-agricultural GDP | −4.38 | −3.6 | −3.24 | −0.079 | 12 | 0.216 | 0.146 | 0.119 | 0.654 | 3 | −23.524 | −18.508 | −15.984 | −3.274 | 3 |
Personal income tax | −4.38 | −3.6 | −3.24 | 1.406 | 12 | 0.216 | 0.146 | 0.119 | 0.624 | 3 | −23.524 | −18.508 | −15.984 | 0.659 | 3 |
Business income tax | −4.38 | −3.6 | −3.24 | 1.115 | 12 | 0.216 | 0.146 | 0.119 | 0.384 | 3 | −23.524 | −18.508 | −15.984 | −4.116 | 3 |
Direct tax | −4.38 | −3.6 | −3.24 | 0.527 | 12 | 0.216 | 0.146 | 0.119 | 0.429 | 3 | −23.524 | −18.508 | −15.984 | −2.695 | 3 |
First differences | |||||||||||||||
Agricultural GDP | −4.325 | −3.576 | −3.226 | −4.698 | 1 | 0.216 | 0.146 | 0.119 | 0.0634 | 3 | −23.396 | −18.432 | −15.936 | −23.538 | 3 |
Non-agricultural GD | −4.334 | −3.58 | −3.228 | −3.632 | 2 | 0.216 | 0.146 | 0.119 | 0.041 | 3 | −23.524 | −18.508 | −15.984 | −23.396 | 3 |
Personal income tax | −4.325 | −3.576 | −3.226 | −3.952 | 1 | 0.216 | 0.146 | 0.119 | 0.104 | 3 | −23.396 | −18.432 | −15.936 | −30.704 | 3 |
Business income tax | −4.316 | −3.572 | −3.223 | −4.205 | 0 | 0.216 | 0.146 | 0.119 | 0.0922 | 3 | −23.396 | −18.432 | −15.936 | −22.889 | 3 |
Direct tax | −4.325 | −3.576 | −3.226 | −4.427 | 0 | 0.216 | 0.146 | 0.119 | 0.102 | 3 | −23.268 | −18.356 | −15.888 | −25.549 | 3 |
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Azime, H., Ramakrishna, G., Asfaw, M. (2017). Agricultural Tax Responsiveness and Economic Growth in Ethiopia. In: Heshmati, A. (eds) Studies on Economic Development and Growth in Selected African Countries. Frontiers in African Business Research. Springer, Singapore. https://doi.org/10.1007/978-981-10-4451-9_13
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