FACTOR AFFECTING TAX REVENUE IN ETHIOPA

Abstract

The purpose of this study is to analyze the factors that affect revenues from taxes by the revenue government. The main objective of this study is to explore the factors affecting tax revenue in Ethiopia by using a secondary data and vector Autoregressivemodel. Tax revenue may be affect-ed by various factors such as inflation, unemployment, tax rates, level of actual income exchange rate and foreign direct investment. The research approaches adopted in this thesis include col-lections of series data set that consists of twenty five years. The time period covered was 1994/95 to 2017/18. The findings from this research provide evidence that, result of inflation rate shows negative significant, disposal income in billions of birr positive and significant, unemployment rate have negative insignificant impact on tax revenue and interest rate have positive significant export also negative significant, and government expenditure negative insignificant effect on tax revenue. The main conclusions drawn from this study are disposal income, interest rate infla-tion rate, and export have significant impact on tax collection, Unemployment rate and govern-ment expenditure are insignificant variables affecting tax revenue. The study also provides rec-ommendations that the policy makers come with policies to control the inflation rate in Ethiopia as it negatively affects tax revenue, and the government should be attracting FDI to Ethiopia and it should be directed to more manufacture sectors of the economy and to reduce unemployment. Lobby for higher employee salaries since this will further contribute to higher tax revenue and Policies makers should undertake reduce unemployment by improved geographical mobility, stricter benefit requirements, Improve labor, encourage labor intensive industries and Employ-ment subsidies.