Taxes and Economic Growth of Kenya

Abstract

This research paper examines the relationship between taxes and economic growth of Kenya. To achieve the objectives of the study, time series data on gross domestic product (GDP), total tax revenues (TTR), value added tax (VAT), income tax, excise duties, import duties and agency revenues for the years 1984 to 2013 were used. The study adopted the model used by Lee & Gordon where several independent variables are related to the dependent variable. The study used the classical linear regression model based on the OLS estimation method to establish the nature and the strength of the relationships between taxes and economic growth. All the tax variables showed a positive relationship with gross domestic product and total tax revenue. The study recommends that the government utilizes the positive relationships that exist between taxes and economic growth to put in place mechanisms aimed at increasing revenue collection in order to spar economic growth. This will in turn boost per capita income and increase the demand of products.