Estimating Tax Buoyancy and Stability in Ethiopia

Biruk Birhanu

doi:10.4172/2162-6359.1000539

Abstract

Estimating Tax Buoyancy and Stability in Ethiopia

Highlights

Economic growth increases the taxable capacity of a country and enables a larger share of the private sector's resources to be ceded to the government as taxes to provide public goods and services
The underlying assumptions become as GDP rises, do tax revenues rise at the same pace? The concept of buoyancy which measures the response of tax revenue to changes in income has been formulated
15Direct tax used in this study includes tax on income from employment/personal income tax (PIT), business profit tax (BPT), tax on income from rental of buildings (RBT)

Summary

Introduction

The public policy instruments, such as tax rate changes, have different implications in exogenous (neoclassical) and endogenous growth theories. To assess the responsiveness of tax revenues to fiscal policy measures, it is necessary to determine its responsiveness to growth in the tax base. Getachew [7] echoed the fiscal deficit has necessitated tax reforms in the Tax and Custom Administrations since 1992 He pointed out, the country faced severe macroeconomic imbalances such as falling export earnings, worsening balance of payments, and mounting debts and declining economic growth, the country undertook various policy measures following a major economic shift from centrally planned to market oriented system. The study helps fiscal policy decision making through knowledge of the magnitude of the percentage change of tax revenues with its base (buoyancy), which not knowing will undermine or over exaggerate the expectation of policy makers about the capacity of the economy to generate revenue, and results in fiscal imbalance

Materials and Methods

Findings

Result and Discussion