An empirical assessment of tax performance in Kenya: 1958 to 1989
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Date
1991-07
Authors
Wawire, N. H. W.
Journal Title
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Abstract
Several studies have been undertaken in various
countries with the aim of assessing tax performance.
The most common approach in these studies has been to
determine the ratio of tax revenue to gross domestic
product. Recent such studies have included several
other variables in the analysis of tax performance.
This particular study has attempted to assess tax
performance in Kenya by analysing tax ratios, tax
effort indices, tax ratio buoyancy, and per capita
income elasticities of various ta ratios.
Data for 32 years on tax revenue, per capita
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income and on tax aspects of mining, manufacturing,
quarrying, building, construction, agriculture, forestry,
fishing, exports, imports, gross domestic
product and inflation were collected. The data were
converted to constant 1958 values by dividing them
through by cumulative inflation rate. The shares of
various sectors in gross domestic product were
obtained by dividing their respective value addeds by
gross domestic product.
The methodology employed in this study involved
identifying major economic factors that influence the
capacity to levy and to pay taxes. Relative
influences of these factors on tax revenue were then
measured using regression methods. Given the coefficients
of explanatory variables, a tax ratio was •
predicted for each year and this ratio was divided by
the actual tax ratio to obtain an index of tax effort.
The influence of per capita income on tax ratio was
taken as the estimate of tax ratio buoyancy. When
estimating the income elasticity of the tax ratio,
dummy variables were introduced to control for
unobservable determinants of the tax ratio.
On the basis of empirical evidence the study
concludes that:
(i) The tax ratio increases with per capita income,
which means that a larger per capita income
implies higher tax revenues. However, the tax
ratio is inelastic with respect to per capita
income, implying a less than proportionate
response of the tax ratio to growth in per
capita income.
(ii) An increase in the volume of international trade
increases the tax ratio.
(iii) The tax ratio increases with GDP shares of
manufacturing, mining, quarrying. building and
construction sectors.
(iv) The tax ratio is inversely correlated with GDP
shares of agriculture, forestry and fishing
sectors. This result, together with (iii) above,
suggests that the tax ratio is greatly
influenced by the structure of the economy.
Other results, including their policy
implications, are reported and discussed in the
text.
Description
Master of arts in economics,104p. july, 1991