Liberalization and Productivity of the Ethiopian Tax System
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Date
2006-07
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A.A.U
Abstract
This stud y looks in to the productivity of the tax system in Ethiopia and the effects of the 1990 s
liberalization reforms on it using a quantified approach. Results of econometric regression have
shown that the tax system in Ethiopia is in e last ic. This result would mean that the tax system in
Ethiopia has not been able to gene rate the potential level of revenues from the level of national
income in the country with out adjustment of tax rates. The tax system is found to be inelastic
mainly due to in elastic base to income responses in most of the tax regimes.
the look in to the effects of the liberalization reforms has shown that most of the major tax
categories have not felt impact while the overall tax system appears to be slightly positively
affected. This improvement could be due to the improvement in one major tax category namely,
business income tax , from the five categories considered in this stud y and to potential
improvements elsewhere.
Most of the major tax categories together with the overall tax system have shown that they
possess a buoyancy coefficient that exceeds their respective elasticity coefficients . Moreover, the
tax buoyancies in most cases are found to be slightly positively affected by the above-mentioned
reform.
The major recommend action of this stud y is t hat the attempt to improve the productivity of the tax
system in Ethiopia should give greater emphasis is to the issue of tax base to income elasticity
improvement.
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Keywords
Liberalization, Productivity