Numerical simulations have been performed to investigate tip clearance effect on through-flow and performance of a centrifugal compressor which has the same configuration of impeller with six different tip clearances. Secondary flow and loss distribution have been surveyed to understand the flow mechanism due to the tip clearance. Tip leakage flow strongly interacts with mainstream flow and considerably changes the secondary flow and the loss distribution inside the impeller passage. A method has been described to quantitatively estimate the tip clearance effect on the performance drop and the efficiency drop. The tip clearance has caused specific work reduction and additional entropy generation. The former, which is called inviscid loss, is independent of any internal loss and the latter, which is called viscous loss, is dependent on every loss in the flow passage. Two components equally affected the performance drop as the tip clearances were small, while the efficiency drop was influenced by the viscous component alone. The additional entropy generation was modeled with all the kinetic energy of the tip leakage flow. Therefore, the present paper can provide how to quantitatively estimate the tip clearance effect on the performance and efficiency.