The Effect of Tax Revenue Mobilization on the Economic Growth of Ethiopia

Abstract

A study on the long run and short run effects of tax revenue mobilization on the economic growth of Ethiopia was conducted using an explanatory research design and mixed research approach. Secondary data from world development indicators spanning from 1990 to 2021 were analyzed using Auto regressive distributive lag (ARDL). The study found no long run causal relationship between taxation, different tax classifications, and economic growth in Ethiopia during the study period. However, in the short run, the current period of tax revenue had a positive and significant impact on economic growth, while a one-period lag in tax revenue had a negative and significant effect. Specifically, the one-period lag in direct tax negatively affected economic growth. Indirect tax did not show a significant effect in both the short run and long run. Based on these findings, the study recommends that the Ethiopian government and the Ministry of Revenues review the tax system and implement mechanisms to shift tax revenue sources from direct tax to indirect tax. This can be achieved by introducing strong tax collection methods and emphasizing the collection of domestic indirect tax.