Impact of the Political Regime Characteristics on Tax Reform Efforts in Ethiopia

A political regime is an institutional framework that influences economic performance by shaping its environment or impacting government capabilities and policy decisions. Several studies have been conducted to explore the link between political regimes and taxation from theoretical and empirical perspectives. While there is no clear consensus, many studies suggest a positive correlation between political regime characteristics and taxation. In advanced economies, features of political regimes often drive tax reform efforts, but findings in developing countries, including Ethiopia, have been inconsistent. Hence, to bridge the existing research gap, this study employed the Autoregressive Distributed Lag (ARDL) model to analyze the long- and short-run dynamics of political regime factors on tax reforms in Ethiopia using data from 1991 to 2022. The findings revealed that the political regime has a positive and significant impact on tax policy reform in the long run. Conversely, the quality of governance has demonstrated a substantial harmful effect in the long run. This indicates a reality marked by weak institutional capacity, prevalent corruption, and a lack of accountability in the tax system, which constrained the effective implementation of tax reforms during the specified period. Therefore, government policymakers should primarily promote political institutions that harm economic performance. Additionally, enhancing the quality of governance, curbing corruption, and improving democratic accountability are essential in enhancing the effectiveness of tax reform in Ethiopia. Finally, this paper contributes to the existing literature by incorporating the impact of political regime characteristics on tax reform efforts in Ethiopia.