An Empirical Analysis of the Dynamics of Tax Revenue Determinants in Kenya: A Longitudinal Approach

Otieno Benard*
Department of Economics, University of Kerala, India.
Periodicity:January - April'2024
DOI : https://doi.org/10.26634/jecom.4.1.20946

Abstract

The volatility of tax income poses a significant challenge for Sub-Saharan African countries, contributing to erratic public spending and hindering sustainable economic progress. Recent global economic crises have underscored the urgency for these nations to bolster local revenue sources and overcome structural barriers to economic development. This paper examines the factors influencing tax revenue in Kenya over 39 years, from 1984 to 2022. Utilizing data from various sources, including the World Bank's World Development Indicators (WDI), the Kenya Revenue Authority (KRA), the Central Bank of Kenya (CBK), and the Organization for Economic Co-operation and Development (OECD), the study employs an autoregressive distributed lag (ARDL) model to distinguish long-run relationships from short-run dynamics due to the mixed order of integration among variables. The empirical model includes real GDP, agricultural gross value added, general government expenditure, inflation, consumer price, official development assistance, and industrial gross value added as key determinants. The ARDL bounds test confirms a long-term equilibrium. The connection between the variables and the error correction model indicates a relatively quick adjustment process, with around 25% of disequilibrium corrected within a single period. Results from the long-run ARDL estimation suggest that agricultural value added significantly increases tax revenue. In contrast, variables such as GDP and government expenditure do not show a significant long-term effect. In the short run, the lagged tax-to-GDP ratio and GDP significantly impact tax revenue. These findings underscore the importance of agricultural productivity and provide valuable insights for policymakers seeking to enhance tax revenue in Kenya.

Keywords

Tax Revenue, Economic Development, Tax Determinants, ARDL Model, Effective Tax Policies, Kenya.

How to Cite this Article?

Benard, O. (2024). An Empirical Analysis of the Dynamics of Tax Revenue Determinants in Kenya: A Longitudinal Approach. i-manager's Journal on Economics & Commerce, 4(1), 18-30. https://doi.org/10.26634/jecom.4.1.20946

References

[1]. Aamir, M., Qayyum, A., Nasir, A., Hussain, S., Khan, K. I., & Butt, S. (2011). Determinants of tax revenue: A comparative study of direct taxes and indirect taxes of Pakistan and India. International Journal of Business and Social Science, 2(19), 173-178.
[2]. Aggrey, J. (2011). Determinants of Tax Revenue: Evidence from Ghana (Doctoral dissertation, University of Cape Coast).
[3]. Ansari, M. A., & Rub, M. (1982). Executive success as a function of leadership style-organizational climate fit. Managerial Psychology, 3(1), 56-68.
[5]. Basirat, M., Aboodi, F., & Ahangari, A. (2014). Analyzing the effect of economic variables on total tax revenues in Iran. Asian Economic and Financial Review, 4(6), 755-767.
[6]. Bhushan, A., & Samy, Y. (2012). Aid and Taxation: Is Sub-Saharan Africa Different. Ottawa, North-South Institute.
[7]. Boukbech, R., Bousselhamia, A., & Ezzahid, E. (2018). Determinants of tax revenues: Evidence from a sample of Lower Middle Income countries. Applied Economics and Finance, 6, 11-20.
[8]. Chaudhry, I. S., & Munir, F. (2010). Determinants of low tax revenue in Pakistan. Pakistan Journal of Social Sciences, 30(2), 439-452.
[9]. Desai, M. A., Foley, C. F., & Hines Jr, J. R. (2004). Foreign direct investment in a world of multiple taxes. Journal of Public Economics, 88(12), 2727-2744.
[14]. Gupta, A. S. (2007). Determinants of Tax Revenue Efforts in Developing Countries. IMF Working paper 07/184.
[16]. Javid, M., Arif, U., & Qayyum, A. (2012). Impact of remittances on economic growth and poverty. Academic Research International, 2(1), 433-447.
[20]. Mutascu, M., & Danuletiu, D. (2013). The Literacy Impact on Tax Revenues (No. 2013-63). Economics Discussion Papers.
[21]. Okafor, R. G. (2008). An analysis of the preference of organizational forms for small scale Investors in Nigeria: Issue of income tax consideration. Journal of Association of National Accountants of Nigeria, 16(1), 6-17.
[22]. Pessino, C., & Fenochietto, R. (2010). Determining countries' tax effort. Hacienda Pública Española/Revista de Economía Pública (pp. 65-87).
[24]. Saibu, O. M., & Olatunbosun, S. O. (2013). Macroeconomic determinants of tax revenue in Nigeria (1970-2011). World Applied Sciences Journal, 28(1), 27-35.
[28]. Wawire, N. H. (2016). Analysis of income tax system productivity in Kenya. Amity Journal of Economics, 1(2), 1-8.
If you have access to this article please login to view the article or kindly login to purchase the article

Purchase Instant Access

Single Article

North Americas,UK,
Middle East,Europe
India Rest of world
USD EUR INR USD-ROW
Pdf 35 35 200 20
Online 35 35 200 15
Pdf & Online 35 35 400 25

Options for accessing this content:
  • If you would like institutional access to this content, please recommend the title to your librarian.
    Library Recommendation Form
  • If you already have i-manager's user account: Login above and proceed to purchase the article.
  • New Users: Please register, then proceed to purchase the article.