Tax Revenue and the Economy of Sub-Saharan Africa: A Systemic Analysis

Abstract

This paper examines the role of tax revenue in engineering economic growth in the Sub-Saharan Africa (SSA) region, analyzing data for 12 regional countries obtained from secondary sources such as the OECD database and World Bank World Development Indicators (WDI), covering the period 2005-2020, and analyzed using the fixed effect method, which accounts for possible heterogeneity among the SSA countries. Economic growth was measured using real gross domestic product, and tax revenue by ratio of tax revenue to GDP. The study controlled for other economic growth drivers such as trade openness, foreign direct investment, exchange rate, domestic investment and money supply. The salient findings indicate that taxation hampers the economic growth of SSA countries, and that domestic investment and favorable exchange rates promote economic growth in the SSA region, but domestic investment has a greater stimulating impact. Based on these findings, we recommend that governments of the SSA countries should implement tax cuts or expand the tax base of the local economy in order to reduce the deadweight loss of increased taxation.