Effective tax rates and firm size in Ethiopia

The literature on Effective Tax Rates (ETRs) focuses on high‐ and middle‐income countries, but there is very little evidence on low‐income countries. This article addresses this gap with new evidence from Ethiopia. We investigate corporate ETRs in Ethiopia and whether the distributional effects they have in practice are in line with the corporate tax policy design. We calculate ETRs in line with the literature in this field, using profit tax at the numerator and gross profit at the denominator. We then analyse ETRs not only using panel data, focusing particularly on their relation to firm size, but also including other explanatory variables. Our main result is that, despite a proportional tax rate, small firms face a higher effective tax burden than larger firms, while middle‐sized firms face the lowest burden of all. We highlight that tax systems can have practical implications that differ largely from their policy design, due to compliance costs and imperfect enforcement. Measures to reduce compliance costs for small firms are particularly recommended.     

The Political Economy of Privatization in Sub‐Saharan Africa*

Objective. Few studies have examined the determinants of privatization in Sub‐Saharan Africa. This study examined the macroeconomic, political, and institutional factors that drive the privatization process in Sub‐Saharan Africa. Method. We used pooled ordinary least squares regression estimation technique to analyze the determinants of privatization in 22 Sub‐Saharan African countries over a period of 12 years (1991–2002). Results. We found that inflation, income inequality, and the institutional or governance infrastructure are key determinants of privatization in Sub‐Saharan Africa. On the other hand, we did not find democracy and debt to be significantly correlated with privatization. However, countries with high debt levels that were also experiencing high inflation were more likely to privatize. Conclusion. Government leadership and, consequently, politics play a significant role in the privatization decision in Sub‐Saharan African countries.