Analysis of Buoyancy and Elasticity of Income Taxes in Kenya
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Date
2020
Authors
Ambale, Caren Akumu
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Kenya, just like many developing countries is currently confronted by huge fiscal deficits,
declining external assistance and huge debt service charges that are adversely affecting the
country’s development process. The tax revenue in Kenya keeps performing poorly and
unsteadily. The revenue collected from tax does not match the target which creates budget
deficits. Increased spending needs and weakening revenue-raising capacities have together
created structural budget deficits that have in turn brought about fiscal crises whenever a
recession hits. Therefore, of concern to policymakers is how Kenya can attain revenue
stability and be able to sustain public expenditures. To do this, there was need to determine
buoyancy and elasticity of income tax revenue. It analyzed the buoyancy and elasticity of
corporate and personal income tax in Kenya. The study utilizeddata1963 to 2018.The study
used ordinary least square regression model to estimate the coefficients. Adjusting data for
discretionary changes determined the elasticity estimates. Specifically, the study
established that, corporate income taxes are highly buoyant to changes in the national
income. This being the position, it is important to understand this relationship as it has a
potential of contributing significantly to government revenue. Also, the study noted that
buoyancy of personal income taxes were less than one implying that these taxes are
inelastic. It is necessary for the government to put in place guidelines that would widen the
tax base. The government should for instance put up measures that can be implemented to
ensure that all corporations pay taxes due to them without tax evasion. The government
should also create an environment conducive enough to facilitate Gross Domestic Product
growth. This way, it will be possible to raise more tax revenue.
Description
A research project submitted to the Department of Economic Theory in partial
fulfillment of the requirements for the award of the degree of Master of Economics
(Policy and Management) of Kenyatta University
September, 2020
Keywords
Buoyancy of Income Taxes, Elasticity of Income Taxes, Kenya