Institutional and macroeconomic determinants of tax revenue in Sub-Saharan African countries

Despite the efforts, the SSA countries continue to struggle to raise adequate tax revenue that supports their development endeavors. Prior studies on determinants of tax revenue emphasized on macroeconomic variables, while institutional variables remain underexplored. This study considers both institutional and macroeconomic determinants to provide a comprehensive understanding of SSA countries tax revenue determinants. The study analyzes 20 SSA countries 15-year data (2009–2023). The data was collected from the World Bank, the Global Economy database, and SSA countries central banks. A fixed effects panel model was selected based on the Hausman test. SSA countries only collected 14.7% of their GDP in taxes, which is significantly less than the 19% GDP tax collection level needed to meet the Sustainable Development Goals (SDGs). Regression results confirm that the shadow economy (− 0.229), inflation (− 0.008), and unemployment (− 0.377) significantly reduce tax revenue. Conversely, government spending (0.347) and trade openness (0.045) positively impact revenue. The business regulatory environment (− 1.531) weakens tax collection by discouraging economic activity. Institutional variables of political stability, control of corruption, and efficiency in revenue mobilization do not significantly impact tax revenue in SSA countries due to weak enforcement, tax loopholes, structural constraints, and a large informal economy; preventing these institutional variables from translating into higher revenue. These findings emphasize the need for policies that formalize the shadow economy, stabilize inflation, reduce unemployment, and improve business regulatory environments. Optimization of government spending and implementations of trade-enhancing policies can further strengthen tax revenue in SSA.