Effect of Tax Mobilization on External Public Debts in Kenya
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Date
2020
Authors
Gacheru, Esther Wambui
Journal Title
Journal ISSN
Volume Title
Publisher
KESRA/Moi University
Abstract
The rate at which Kenya is borrowing has been on the rise in the past five years to
harmonize the budget deficit resulting from low revenue collection which cannot
cater for the desired expansion of the economy and development of infrastructure.
Kenya’s external public debt is on the rise and portrays a state of distress. There is
therefore need to examine whether there are threats of debt overhang in Kenya and
how tax mobilization can enhance external public debts servicing. Thus the current
study sought to investigate the relationship between of tax mobilization and external
public debts in Kenya. The study was guided by tax reforms, tax mobilization
strategies and how tax mobilization resources as independent variables and external
public debts in Kenya as dependent variable. Four major theories guided the study
namely theory of tax smoothing, classical theory of public debt, Keynesian debt
theory, and Lerner’s theory of functional finance. The study used primary and
secondary data. The target population of the study comprised of 1332 domestic taxes
department staff in KRA. The study employed stratified random sampling technique
in coming up with a sample size of 308 respondents. Descriptive statistics was used in
organizing and summarizing the data while regression and correlation analysis were
used to test the study hypotheses by establishing the relationships between
independent and dependent variable. In regard to primary data the study found that tax
mobilization reforms (β1=0.558, p=0.0276<0.05), tax mobilization strategies
(β2=0.731, p=0.285<0.05) and tax mobilization resources (β3=-0.620, p=
0.0249<0.05) have a significant effect on the level of external public debt in Kenya.
The study concluded that the level of external public debt relies on tax mobilization
reforms, tax mobilization strategies and tax mobilization resources. However, in
regard to secondary data the results of the regression analysis revealed that the tax
mobilization resources were statistically significant (β0=1.308, p= 0.357>0.05). The
results imply that for any unit change in tax mobilization resources would lead to a
decrease in external public debt by 1.308 units holding all other factors constant.
From the findings, the study recommends a multipronged and multiagency approach
towards reducing public debt. The Kenyan government should also aim to reduce its
recurrent expenditure characterized by huge wage bill that stifles the mobilized
revenue.
Description
Keywords
Tax Reforms, Debt Obligations, Tax Strategies, Tax Resources, Corporate Tax, PAYE