The achievement of economic growth is crucial for countries sustainable development. Recently, Value Added Tax (VAT) becomes a major worldwide tax instrument which enhances economic growth. Thus, this paper analyses the role of VAT on economic growth of Ethiopia from 1990 to 2021 based on theoretical and empirical evidences. The main objective of this study is to analyze role of tax in Ethiopia from (1990 to 2021). The method of analysis was econometrics analysis. This paper used Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) in order to investigate the long-run and short run relationship between the dependent variable and its determinants. To test stationary Augmented Dickey –Fuller (ADF) test and Phillpes Perron (PP) test were used. The error correction coefficient, estimated at -0.75452 is highly significant, has the correct negative sign, and imply a very high speed of adjustment to equilibrium. R-squared is 0.6568: This implies that 65.68% of the real gross domestic product function is explained by the selected explanatory variables. In other words, 65.68% of variation of the dependent variable is due to the variation of the independent variables which included in the model and the remaining variation 34.32% is explained by the variables which are not included the model. To meet this objective, time series macro-economic data on GDP, VAT, and tax revenue excluding VAT, non-tax revenue, population, human capital and gross capital formation were used. This data is collected from National Bank of Ethiopia, Central Statistical Agency, World Development Indicator (WDI), the Global Economy, World Data Bank, National Bank of Ethiopia websites, Ethiopian Revenue and Customs Authority. The finding of the study reveals that strong and positive impact of VAT revenue on the economic growth (GDP) of Ethiopia during the periods under review. i.e. One per cent increase in the growth of net VAT revenue causes 20.35% increase in the growth of nominal GDP. However, to be effective, it requires strong administrations and cooperation’s of the tax payers with taxing authority and the government in general.
| Published in | International Journal of Business and Economics Research (Volume 11, Issue 5) |
| DOI | 10.11648/j.ijber.20221105.14 |
| Page(s) | 295-303 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2024. Published by Science Publishing Group |
Economic Growth, VAT, ARDL, ECM, Ethiopia
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APA Style
Assefa Belay. (2022). The Role of Value Added Tax (VAT) on Economic Growth of Ethiopia. International Journal of Business and Economics Research, 11(5), 295-303. https://doi.org/10.11648/j.ijber.20221105.14
ACS Style
Assefa Belay. The Role of Value Added Tax (VAT) on Economic Growth of Ethiopia. Int. J. Bus. Econ. Res. 2022, 11(5), 295-303. doi: 10.11648/j.ijber.20221105.14
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Download@article{10.11648/j.ijber.20221105.14,
author = {Assefa Belay},
title = {The Role of Value Added Tax (VAT) on Economic Growth of Ethiopia},
journal = {International Journal of Business and Economics Research},
volume = {11},
number = {5},
pages = {295-303},
doi = {10.11648/j.ijber.20221105.14},
url = {https://doi.org/10.11648/j.ijber.20221105.14},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20221105.14},
abstract = {The achievement of economic growth is crucial for countries sustainable development. Recently, Value Added Tax (VAT) becomes a major worldwide tax instrument which enhances economic growth. Thus, this paper analyses the role of VAT on economic growth of Ethiopia from 1990 to 2021 based on theoretical and empirical evidences. The main objective of this study is to analyze role of tax in Ethiopia from (1990 to 2021). The method of analysis was econometrics analysis. This paper used Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) in order to investigate the long-run and short run relationship between the dependent variable and its determinants. To test stationary Augmented Dickey –Fuller (ADF) test and Phillpes Perron (PP) test were used. The error correction coefficient, estimated at -0.75452 is highly significant, has the correct negative sign, and imply a very high speed of adjustment to equilibrium. R-squared is 0.6568: This implies that 65.68% of the real gross domestic product function is explained by the selected explanatory variables. In other words, 65.68% of variation of the dependent variable is due to the variation of the independent variables which included in the model and the remaining variation 34.32% is explained by the variables which are not included the model. To meet this objective, time series macro-economic data on GDP, VAT, and tax revenue excluding VAT, non-tax revenue, population, human capital and gross capital formation were used. This data is collected from National Bank of Ethiopia, Central Statistical Agency, World Development Indicator (WDI), the Global Economy, World Data Bank, National Bank of Ethiopia websites, Ethiopian Revenue and Customs Authority. The finding of the study reveals that strong and positive impact of VAT revenue on the economic growth (GDP) of Ethiopia during the periods under review. i.e. One per cent increase in the growth of net VAT revenue causes 20.35% increase in the growth of nominal GDP. However, to be effective, it requires strong administrations and cooperation’s of the tax payers with taxing authority and the government in general.},
year = {2022}
}
TY - JOUR T1 - The Role of Value Added Tax (VAT) on Economic Growth of Ethiopia AU - Assefa Belay Y1 - 2022/10/31 PY - 2022 N1 - https://doi.org/10.11648/j.ijber.20221105.14 DO - 10.11648/j.ijber.20221105.14 T2 - International Journal of Business and Economics Research JF - International Journal of Business and Economics Research JO - International Journal of Business and Economics Research SP - 295 EP - 303 PB - Science Publishing Group SN - 2328-756X UR - https://doi.org/10.11648/j.ijber.20221105.14 AB - The achievement of economic growth is crucial for countries sustainable development. Recently, Value Added Tax (VAT) becomes a major worldwide tax instrument which enhances economic growth. Thus, this paper analyses the role of VAT on economic growth of Ethiopia from 1990 to 2021 based on theoretical and empirical evidences. The main objective of this study is to analyze role of tax in Ethiopia from (1990 to 2021). The method of analysis was econometrics analysis. This paper used Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) in order to investigate the long-run and short run relationship between the dependent variable and its determinants. To test stationary Augmented Dickey –Fuller (ADF) test and Phillpes Perron (PP) test were used. The error correction coefficient, estimated at -0.75452 is highly significant, has the correct negative sign, and imply a very high speed of adjustment to equilibrium. R-squared is 0.6568: This implies that 65.68% of the real gross domestic product function is explained by the selected explanatory variables. In other words, 65.68% of variation of the dependent variable is due to the variation of the independent variables which included in the model and the remaining variation 34.32% is explained by the variables which are not included the model. To meet this objective, time series macro-economic data on GDP, VAT, and tax revenue excluding VAT, non-tax revenue, population, human capital and gross capital formation were used. This data is collected from National Bank of Ethiopia, Central Statistical Agency, World Development Indicator (WDI), the Global Economy, World Data Bank, National Bank of Ethiopia websites, Ethiopian Revenue and Customs Authority. The finding of the study reveals that strong and positive impact of VAT revenue on the economic growth (GDP) of Ethiopia during the periods under review. i.e. One per cent increase in the growth of net VAT revenue causes 20.35% increase in the growth of nominal GDP. However, to be effective, it requires strong administrations and cooperation’s of the tax payers with taxing authority and the government in general. VL - 11 IS - 5 ER -
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