Liberalization and Productivity of the Ethiopian Tax System

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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.



Liberalization, Productivity