The Income Redistributive Effects of Taxes in Africa

This paper investigates the role taxation plays in income redistribution in Africa. We focus on 52 African countries over the period 1990 - 2017 and deploy the robust system Generalized Method of Moments estimation strategy. Our findings indicate that taxes play a statistically significant role in narrowing income inequality in Africa. In particular, direct tax in the form of taxes on income, profit and capital gains plays a much stronger role in income redistribution than other forms of taxes. Contrary to our expectations, we find property taxes to have an income un-equalizing effect and this may be due to the low property tax base and weak tax compliance levels in Africa. Similarly but unsurprisingly, we find taxes on goods and services, value-added tax and taxes on international trade and transaction to be regressive in Africa. The paper suggests a broadening of the tax net in Africa with more attention towards taxes on income, profits and capital gains in order to ensure a fair balance between equality and efficiency. Efforts towards the collection of property taxes should also be boosted.