ANALYSIS OF DIRECT TAXES AND GROSS DOMESTIC PRODUCT OF THE KENYAN ECONOMY
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Date
2022-03-26
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European Journal of Economic and Financial Research
Abstract
Gross Domestic Product acts as an indicator of the economic growth of a country. To
enhance economic growth, the government must initiate development that would spur
such growth. Gross Domestic Product represents the rise or fall in per capita income. To
facilitate such development, the government should ensure consistent income through
taxation. The purpose of this study was to establish the relationship between direct taxes
and the Gross Domestic Product of the Kenyan economy. The independent variable was
direct tax while the dependent variable was real Gross Domestic Product. The Benefit
theory of taxation was used in the study. Time series data collected from Economic
Survey for 21 years covering the period 1999-2020 was used in the study. The data was
analyzed using inferential statistics. The results showed that direct tax accounted for 84%
of real GDP during the period under study (R2=.85) ad that there was a strong positive
correlation between direct tax and real GDP (R=.916). Moreover, it was revealed that a
unit standard increase in direct tax would significantly lead to .916 increase in real GDP
(ß=.916, p<0.05). In conclusion, the study failed to accept the null hypothesis and
concluded that Direct Taxes have a significant relationship with the Real Gross Domestic
Product of the Kenyan economy. The study recommended that government should
ensure an effective and efficient way of collecting and utilizing direct taxes since they
have a direct bearing on the growth of the economy.
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Keywords
taxes, domestic, economy, growth, government, development