Estimation of the sub-national fiscal potential of WAEMU countries using satellite images of nighttime lights data

In many developing countries, estimating subnational fiscal potential remains a major challenge due to the lack of reliable and disaggregated economic data at the administrative division level. This gap limits governments’ ability to design and implement equitable fiscal policies that are tailored to local realities. In response to this challenge, the use of alternative data such as total nighttime light opens up new possibilities for estimating and distributing fiscal potential at the subnational level. This study evaluates the sub-national fiscal potential of eight member countries of the West African Economic and Monetary Union (WAEMU) (Benin, Togo, Niger, Burkina Faso, Mali, Guinea-Bissau, Senegal, and Côte d’Ivoire) over the period 2012–2023, using satellite data on total nighttime light (TNL) intensity. A three-step methodology is employed: (1) estimation of national fiscal potential using the Stochastic Frontier Analysis (SFA) method; (1) analysis of the relationship between TNL and fiscal potential through Granger Causality tests and a panel-data Generalized Method of Moments (GMM) model; (3) estimation of sub-national fiscal potential. The results reveal a causal relationship and a positive, statistically significant effect of night-time light intensity on fiscal potential. The results also show a causal link between tax effort and institutional and economic factors (quality of public administration, good governance, anti-corruption policy, business and labor environment, GDP per capita and internet access). The findings suggest that night-time light is a reliable proxy for estimating and distributing fiscal potential at the sub-national level. The presence of bidirectional causality between TNL and fiscal potential underscores the need for tax administrations in WAEMU countries to adopt an integrated strategy that considers both economic and institutional dynamics. Moreover, the persistence of fiscal potential over time highlights the importance of designing long-term tax policies to enhance their effectiveness in fostering economic development.