Abstract
A broad range of tax reforms have been implemented in Kenya in the post-independence period with the objective of increasing tax revenue for promoting economic growth with reduced reliance on external funding. Most of the reforms have targeted broadening of the tax base. However, tax collections remain inadequate, and deficits have persisted. Past studies on tax revenue growth have looked at effects of foreign sector, stage of development, demographic factors and sectoral mix on tax revenue. The models used in those studies did not factor in political risk factors including democratic accountability, bureaucracy quality and internal conflict. Such factors can have significant direct or indirect influence on tax revenue. This study estimated tax revenue models with these factors captured using data for the period 1984 to 2016. The findings show that increase in bureaucracy quality and democratic accountability lead to increase in tax revenue. Efficiency of institutions is shown to enhance tax collections during periods of social strife suggesting the presence of displacement and inspection effect. Internal conflicts are shown to cause declines in tax revenues. The government of Kenya and its revenue authority should therefore strengthen the quality and efficiency of institutions and effective control measures on acts of civil war, terrorism and civil disorder alongside the tax reforms to increase tax revenues.
 
 JEL: H20; H21; H25
 
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Highlights
Tax performance and domestic revenue mobilisation (DRM) are critical for achievement of fiscal sustainability, reducing over reliance on external funding and reinforcement of a country’s ownership of public policy
The study findings revealed that tax management measures like introduction of sales tax, establishment of Kenya revenue authority and establishment of tax management procedures led to increase in Value Added Tax (VAT)
Kwiatkowski Phillips Schmidt and Shin test (KPSS) (1992) test for stationarity of the data was used instead of Augmented Dickey-Fuller (ADF) because the ADF test cannot distinguish between highly persistent stationary processes from non- stationary processes (Shin & Schmidt, 1992)
Summary
Tax performance and domestic revenue mobilisation (DRM) are critical for achievement of fiscal sustainability, reducing over reliance on external funding and reinforcement of a country’s ownership of public policy. The year 1985 recorded the lowest tax share within the study period, this is as a result of financial crises which led to collapsing of many local banks (Muthoga, 2003) This implied that the quality of institutions and pro activeness of the government in providing checks and balances was inadequate. Despite the increasing though fluctuating trend of tax shares in Kenya, the tax-toGDP ratio is still low, and the country has not been able to attain the Sub Saharan Africa (SSA) target of 26 per cent tax-to GDP average This calls for the need to establish the determinants of tax revenue in Kenya focusing on the political risk factors (OECD, 2015; Kenya Institute for Public Policy Research and Analysis [KIPPRA], 2006). The persistent deficits show the inability of the tax system to generate sufficient revenues to finance public expenditure despite the reforms
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