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Corruption, governance and tax revenues in Africa

Author

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  • Epaphra, Manamba
  • Massawe, John

Abstract

In this paper we analyze the effects of institutional variables (corruption and governance), structural variables (per capita income, trade openness, inflation and share of agriculture in GDP), and policy variables (tax rate and tariff rate) on total tax revenues, direct taxes, indirect taxes and trade taxes using panel data set for 30 African countries over the 1996-2016 period. All estimates are based on fixed effects (FE) and random effects (RE) models. Using Hausman test, RE is earmarked to be the more preferred model in this paper. The RE regression results show that corruption and governance are two main determinants of tax revenues in Africa. While corruption has a significant negative effect on tax revenues, good governance measured in terms of government effectiveness, regulatory quality, rule of law and voice and accountability tends to raise tax revenue generation and in particular, indirect taxes. In the same vein, governance in form of political stability tends to have a very significant effect on direct taxes and international trade taxes. The basic intuition behind these results is that higher institutional capacity and lower corruption enhance tax revenue generation in the economy. Intriguingly, empirical results show that tariff rates tend to have a strong negative effect on total tax revenue but at the same time they have a strong positive effect on trade tax revenue. Moreover, trade openness tends to have a strong positive relationship with tax revenue. Overall, results suggest that to raise more tax revenue, governments should reduce corruption, improve tax and customs administration and raise revenues from tax categories that are less susceptible to corruption. They should as well enhance trade openness.

Suggested Citation

  • Epaphra, Manamba & Massawe, John, 2017. "Corruption, governance and tax revenues in Africa," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(4), October.
    • Handle: RePEc:ags:pdcbeh:285100
    DOI: 10.22004/ag.econ.285100
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    Cited by:

    1. Jean Raoul NKOUDOU BENGONO & Boniface EPO NGAH & Simon Pierre ONANA, 2023. "Effets des transferts intergouvernementaux sur la mobilisation des recettes publiques locales : cas des communes camerounaises," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 58, pages 83-101.
    2. Nurudeen Abu & Mohd Zaini Abd Karim & Joseph David & Musa Abdullahi Sakanko & Onyewuchi Amaechi Ben-Obi & Awadh Ahmed Mohammed Gamal, 2022. "The Behaviour of Tax Revenue amid Corruption in Nigeria: Evidence from the Non-Linear ARDL Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 55-76.
    3. Tran, My Thi Ha, 2021. "Public Sector Management And Corruption In Asean Plus Six," OSF Preprints stxw4, Center for Open Science.
    4. Manamba Epaphra & Lucas E. Kaaya, 2020. "Tax Revenue Effect of Sectoral Growth and Public Expenditure in Tanzania: An application of Autoregressive Distributed Lag Model," Romanian Economic Business Review, Romanian-American University, vol. 15(3), pages 81-120, September.
    5. Dramane, Abdoulaye, 2022. "Tax Revenues Effects of Corruption and Governance in WAEMU Countries," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(4), pages 143-164, December.
    6. Prianto Budi Saptono & Gustofan Mahmud, 2022. "Institutional environment and tax performance: empirical evidence from developing economies," Public Sector Economics, Institute of Public Finance, vol. 46(2), pages 207-237.
    7. Adegboye, Alex & Uwuigbe, Uwalomwa & Ojeka, Stephen & Uwuigbe, Olubukunola & Dahunsi, Olajide & Adegboye, Kofo, 2022. "Driving information communication technology for tax revenue mobilization in Sub-Saharan Africa," Telecommunications Policy, Elsevier, vol. 46(7).

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    Keywords

    Political Economy;

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