Institutions and tax capacity in sub-Saharan Africa

Tagem, Abrams Mbu Enow; Morrissey, Oliver

Abstract

This paper contributes to research on the institutional determinants of tax capacity using annual data from 39 sub-Saharan African countries from 1985 to 2018 to construct a measure of tax capacity for each country based on the trend component of the ratio of actual to potential tax revenue. Potential revenue is estimated by a parsimonious tax performance specification, including only variables found to be robust determinants of the tax/GDP ratio. The results show that, on average, tax capacity is high (given potential) and has improved over time (especially for low-income countries). The final stage of analysis selects, from a wide variety of economic and institutional variables, the most important determinants of cross-country variation in tax capacity. Equal distribution of resources is the most important institutional factor associated with greater capacity, consistent with perceptions of equity supporting the fiscal bargain; corruption is associated with lower capacity, consistent with undermining trust in government. Private consumption and resource rents are associated with greater capacity. Other institutional factors are indirectly associated with greater capacity, such as accountability and elements of democracy associated with equity in the allocation and use of public resources.

Citation

Tagem, A. M. E., & Morrissey, O. (2023). Institutions and tax capacity in sub-Saharan Africa. Journal of Institutional Economics, 19(3), 332-347. https://doi.org/10.1017/S1744137422000145

• Journal Article Type: Article
• Acceptance Date: Jun 11, 2022
• Online Publication Date: Jun 14, 2023
• Publication Date: Jun 14, 2023
• Deposit Date: Jun 26, 2023
• Publicly Available Date: Jun 30, 2023
• Journal: Journal of Institutional Economics
• Print ISSN: 1744-1374
• Electronic ISSN: 1744-1382
• Publisher: Cambridge University Press
• Peer Reviewed: Peer Reviewed
• Volume: 19
• Issue: 3
• Pages: 332-347
• DOI: https://doi.org/10.1017/S1744137422000145
• Keywords: Political institutions; sub-Saharan Africa; tax capacity; tax performance
• Public URL: https://nottingham-repository.worktribe.com/output/21917676
• Publisher URL: https://www.cambridge.org/core/journals/journal-of-institutional-economics/article/institutions-and-tax-capacity-in-subsaharan-africa/803702059648CFBE09B08A9AC3493A4C