The Productivity Of Tax System In Ethiopia (1961- 2005)

This study evaluates the productivity of the tax system in Ethiopia for thernperiod 1961-2005. It examines the role played by elasticity and rndiscretionary tax measures in the government's efforts to reduce thernbudget deficit, and measures the income elasticity of the tax system byrndecomposing elasticity into tax-to-base and base-to-income elasticities.rnThe analysis shows that tax revenue tend to be inelastic with respect tornchanges in tax base. It is estimated that the tax-to-base elasticity isrnrelatively lower than the base-to-income elasticities. The relatively low tax-rnbase elasticity may be explained by inefficient and poor taxrnadministration and the existence of exemptions .rnA result of economic regression also indicates that the major tax categoriesrntogether with the overall tax system possess a buoyancy coefficient thatrnexceeds their respective elasticity coefficients.rnThe study makes policy recommendations in the direction of improvedrnresponse of tax-to-base, improved alignment of taxes , and establishment ofrna strong tax administration, reducing exemption and broadening the taxrnbase.

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