The Productivity of Tax System in Ethiopia (1961- 2005)
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Date
2008-07
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A.A.U
Abstract
This study evaluates the productivity of the tax system in Ethiopia for the
period 1961-2005. It examines the role played by elasticity and
discretionary tax measures in the government's efforts to reduce the
budget deficit, and measures the income elasticity of the tax system by
decomposing elasticity into tax-to-base and base-to-income elasticities.
The analysis shows that tax revenue tend to be inelastic with respect to
changes in tax base. It is estimated that the tax-to-base elasticity is
relatively lower than the base-to-income elasticities. The relatively low tax-
base elasticity may be explained by inefficient and poor tax
administration and the existence of exemptions .
A result of economic regression also indicates that the major tax categories
together with the overall tax system possess a buoyancy coefficient that
exceeds their respective elasticity coefficients.
The study makes policy recommendations in the direction of improved
response of tax-to-base, improved alignment of taxes , and establishment of
a strong tax administration, reducing exemption and broadening the tax
base.
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Keywords
Tax System