An Economic Study of Tax Reforms and Effort in Ethiopia

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Ethiopia as a low income country has encountered problems of Fiscal deficits and limited capacity for tax administration. The Country has been undertaking lots of tax reforms since 1940s as One strategy to deal with these problems. Tax reform, a change • In status quae, is needed when the existing tax system is Deficient in achieving its objectives revenue adequacy, Efficiency, equity and administrative feasibility. This study Discusses: why tax reforms since 1940s were necessary? When were Such reforms carried out? And how were they implemented? Using Time series data, the study also determines tax effort indices Based on aggregative regression approach. The analysis suggests that tax reforms in Ethiopia, during the Past five decades, has largely aimed at increasing revenue, both Through rate increasing and base broadening, rather than Improving efficiency. And the tax effort indices that tell us To what extent the country was capable of raising tax revenue . ~ Suggest that Ethiopia has almost succeeded in exploiting its tax Base on the average. This is because tax effort indices for Different periods were found to be almost unity. And the degree Of openness of the economy, as measured by the relative size of Foreign trade, the level of income, as peroxide by per capita Income and the economic structure particularly the relative size Of agriculture, are found to be important factors that determine The taxable capacity of the country.



Economic Study of Tax Reforms, Effort in Ethiopia