Tax Productivity in Post Reform Ethiopia

Abstract

The paper was designed to analyze tax productivity in post reform Ethiopia from 1991/92 to 2013/14 using ARDL co-integration approach. Tax productivity is defined in terms of tax buoyance and tax elasticity. Tax Elasticity were estimated by adjusting total tax revenue data using proportional adjustment method. In its analysis the study founds buoyance coefficient of 0.95 which is less than unit. It implies that for a one percentage increases in economic growth revenue from total tax system grows on average by 0.95 percent. The implication is that a decreasing proportion of incremental income was transferred to the government in terms of total tax revenue. The elastic coefficient of 2.12 implies that for a one percentage increases in automatic economic growth rather than any discretionary tax policy, revenue from total tax system grows on average 2.12 percent. The indication is that total tax is elastic with respect to automatic economic growth and an increasing proportion of incremental automatic economic growth was transferred to the government in terms of total tax revenue.