Effect of tax mobilization on external public debts in Kenya

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.