Tax buoyancy - a comparative study between Kenya and South Africa

Mandela, Mutokah Barrack
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Strathmore University
One of the most important measures of efficiency of any tax system in public finance is tax buoyancy which is simply the total response of tax revenue to changes in national income. Tax revenue in Africa have been relatively low on average as a percentage of GDP. Since buoyancy echoes the capacity of a tax structure to generate revenues during economic growth, in this study an attempt was made to estimate the buoyancies of income tax, value added tax, import tax, excise tax and total tax revenues in using annual data from 1972 to 2014 in the largest economies in the eastern and southern parts of Africa. It applies the error correction model to measure the short run estimate of tax buoyancy, the long run estimate of tax buoyancy and the level of convergence between the short run estimate and the long run estimate. The results suggest that the tax systems for both countries are buoyant both in the long run and short run with an average speed of adjustment between the long run and the short run estimates.
Submitted in partial fulfillment of the requirements for the Degree of Bachelor of Business Science-Financial Economics at Strathmore University
Buoyancy, Short-run estimate, Long-run estimate, Speed of adjustment