Composition of Ethiopian Domestic Revenues and Tax Buoyancies (1975-2013)

Abstract

The purpose of this study is to examine the buoyancy of tax revenue in Ethiopia over the period 1974/75-2012/13. The analysis was made by fitting double log regression model with an interaction variable to the stationary time series data base on Augmented-Dicky Fuller (ADF). The analysis was made in three different categories. The first category dealt with the whole period to analyze total tax revenue buoyancy over the range of the study period while the second category was compared with total tax revenue buoyancy of the Derg regime period (1974/75-1991/92) and the Ethiopian People’s Revolutionary Front (EPRDF) period (1992/93-2012/13). In addition, the comparison of pre and post-tax reforms has been carried out during the EPRDF period in order to identify whether the series of tax reforms with a view to boosting tax revenue mobilization resulted in the expected tax revenues yields. Year 2003 is considered as post comprehensive tax reform period to examine the impact of the reforms on tax revenues collection. The regression results revealed that the estimates of buoyancy of total tax revenue is higher during EPRDF period compared to Derg period, while the pre reform period buoyancy of total tax revenue is lower than the post comprehensive reform period. From the result, it is possible to conclude that the total tax system during the two government systems is inelastic and the broad tax reforms have not resulted in boosting domestic resource mobilization in general and tax revenue collection in particular.

Keywords: Domestic revenue composition, trend, tax buoyancies, time series data