Empirical Analysis of the Contribution of Vat for Economic Development and Social Spending in Ethiopia
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Date
2011-06
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A.A.U
Abstract
This paper discussed some recent critical literature on value-added tax (VAT) in Ethiopia
relating to its contributions for economic development and its impact on the Social Spending
in Ethiopia. The study employed the tools of quantitative empirical analysis technique
to evaluate the contribution of VAT for the development of Ethiopia economy. The generic
central objective is to examine the contribution of VAT for the development of Ethiopia
economy and its impact on social spending, equity. The tools of empirical analysis used
are multiple regression models as abstractions of the respective sectors considered in the
study and also descriptive statistics. The study considered a vector of economic
Development indicators as dependent variables and regressed each on VAT revenue
proceeds and other income (loan, donation, grant, taxes excluding VAT revenue, and others)
of Ethiopia State for the study period (1 995-2002 E.C or 2003 /04 - 2009110 G.C). The state
economy is dis aggregated into five strategic economic sectors in the development
process, and multiple regression models specified to enhance isolated analysis of each sector.
Development aspects that are considered include infrastructural development, education
sector development, agricultural and natural resource development, health sector
Development and other development sectors. Moreover, in order to make clear decision and
summarize the study, the summation of all capital expenditure on the respective sectors were
taken and regressed. The analysis showed that, except education sector, V AT revenue
contributed positively for the development of the respective sectors. On the aggregate
(model VI), the analysis showed that VAT revenue had a considerable contribution for
the development of the economy during the period under study. However, the
contributions are statistically significant only to health and agricultural and natural resource
development sectors. Therefore, it can be said that, the V AT tax revenue was unable to
neutralize the progressivity of V AT tax levy in Ethiopia because its unsystematic exemptions,
tax structure, and tax system.
Thus, the study concludes that various sectors of the economy of Ethiopia are yet to
benefit significantly from V A T revenue expenditure of the state government
Consequently, the paper calls for equity in sect oral spending of VAT proceeds in
Ethiopia State in order to ensure balanced development and sustainability of the emerging
mega city status of the state.
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Keywords
Analysis of the Contribution, Economic Development