Factors Affecting Tax Revenue in Ethiopia: Autoregressive Distributed Lag Approach

Abstract Tax revenue is the key source of revenue for governments in both advanced and emerging countries regarding funding public spending. The main goal of this research is to look at the factors affecting tax revenue in Ethiopia from 1996 to 2020 using time series data. The impact of agricultural GDP, service-to-GDP, inflation, corruption, political stability, and tax reformation on the ratio of tax revenue to GDP was investigated in this study. The short-run and long-run associations between the variables were determined using the autoregressive distributed lag (ARDL). The outcomes of the study reveal that inflation has a positive relationship with tax; however, agriculture GDP had a negative impact on tax revenue in the short run over the study period. Political stability, service-to-GDP, and inflation, on the other hand, have a positive long-run impact on tax collection, whereas corruption has a negative impact. We advise policymakers and governments to combat corruption, promote political stability, broaden tax bases to include more service-oriented businesses, and reduce reliance on agricultural sectors.