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Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies

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  • Hélène EHRHART

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Christian EBEKE

Abstract

This paper focuses on the sources and consequences of the instability of tax revenue in Sub-Saharan African countries. We take advantage of a unique and extraordinarily rich dataset on the composition of tax revenues for a large number of countries. Using panel data for 39 countries observed over the period 1980-2005, our results are threefold. Firstly, the instability of government tax revenue leads to an instability of both the public investment and government consumption, and finally, reduces the level of public investment. Secondly, foreign aid inflows appear to be an effective insurance mechanism against the instability of tax revenue by lowering the sensitivity of public investment with respect to tax revenue shocks. Finally, the reliance on domestic indirect taxation-based systems seems more stabilizing than the dependency on trade tax revenue.

Suggested Citation

  • Hélène EHRHART & Christian EBEKE, 2010. "Tax Revenue Instability in Sub-Saharan Africa: Consequences and Remedies," Working Papers 201025, CERDI.
    • Handle: RePEc:cdi:wpaper:1192
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    Keywords

    Tax Instability; Tax Composition; Public spending; Foreign aid; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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