The Nexuses between Tax Revenue, Inflation, Private Final Consumption and Economic Growth in Ethiopia

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Date

2016-06

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Addis Ababa University

Abstract

The study aims at understanding the nexus between tax revenue, private final consumption, inflation and economic growth in Ethiopia. To achieve this objective co-integrated VAR approach was employed. The estimated models enable to understand the long run and short run relationship of the variables for the period 1970–2015 in Ethiopia. The study have the following major findings: First, Real GDP exert negative and significant effect on real tax revenue in the long run while the impact of the real private final consumption is positive and insignificant in the long run. Second, there is a strong evidence that inflation exert negative impact on real tax revenue. Third, there is evidence of bi-directional causality between real tax revenue, inflation, real private final consumption and real GDP. Fifth, the impulse response function indicates that the variables are at fast movement towards long run time path. The overall findings of the study underlined given the long run negative impact of RGDP on real tax revenue, it will be natural to think of different reforms. Here, Inferences drawn will have implications for all stakeholders in the economy and are particularly useful for fiscal policy makers of the country.

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Keywords

Fiscal Policy Analysis and Management, Fiscal Policy Analysis

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