Analysis of Budget Deficit and its Structural Determinants in Ethiopia
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Date
1996-06
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A.A.U
Abstract
Immediately following the declaration of socialism in the
country in 1975, both government revenue and expenditure
increased substantially . Nevertheless, the growth of government
expenditure was not matched by growth of revenue hence
persistent and large budget deficits became the feature of
Ethiopian economy. In the face of growing budget deficits the
military government made no attempt to control its expenditure
but relied up on continuous increase in tax rates, introduction
of new taxes and manipulation of the ceilings imposed on
Government borrowing from domestic sources
.
This study examined whether the structural factors
hypothesised by Morrison (1982) are responsible f or the growing
budget deficit. The estimated regression results show that in
the long run government budget deficits is likely to increase
the higher is the degree of government involvement in the
economy, the less exercise control over expenditure, the
higher is revenue instability and the lower is growth in
government revenue. However, the hypothesis that budget deficit
decreases as economy grows is not supported . In the short run
it is only growth in government revenue that is found to
explain the deficits.
Al though the recent policy of the Transitional Government
of Ethiopia planned to decrease the budget deficits, this
Objective was not attained due to the reduction in tax rates.
Moreover, the introduction of the regional administration led
to the duplication of government bureaucracy thereby pushing
up the expenditure level.
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Keywords
Determinants in Ethiopia