Taxing for Sustainable Development in Sub-Saharan Africa: Is More Always Better?

This study investigates the complex relationship between tax mobilization and sustainable development in Sub-Saharan Africa, examining the hypothesis of diminishing returns. It addresses the central question: Does increasing tax revenue beyond a specific threshold hinder progress toward Sustainable Development Goals? Identifying this potential “tipping point” is crucial for optimizing resource allocation. By analyzing data from 41 Sub-Saharan African countries (1990–2019), the research employs the Sustainable Development Index, World Bank Development Indicators, and the Government Revenue Database (GRD). Acknowledging data limitations, the study uses the Generalized Method of Moments (GMM) to account for persistence in sustainable development indicators and Instrumental Variable Tobit regression (with a double-censored Tobit model) to address the constrained range of the Sustainable Development Index. The findings indicate that while increased tax revenue generally positively impacts sustainable development, this effect is not linear. The analysis reveals tax revenue thresholds beyond which further increases may impede sustainable development. Specifically, the threshold for the marginal effect of total tax revenue is approximately 30% of the tax-to-GDP ratio. Similar thresholds are found for non-resource, direct non-resource, and indirect non-resource tax revenues. The study concludes by providing policy recommendations aimed at optimizing tax policies for sustainable development in the region.