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Can Tax Buoyancy in Sub-Saharan Africa Help Finance the Sustainable Development Goals?

Author

Listed:
  • Sanjeev Gupta

    (Center for Global Development)

  • Jianhong Liu

    (Center for Global Development)

Abstract

In this paper, we estimate short- and long-term tax buoyancy for 44 sub-Saharan African (SSA) countries during 1980-2017 using time series and panel techniques. The buoyancy of the tax system captures the response of tax revenues to changes in national income including discretionary changes. We find that the long-term tax buoyancy is either one or slightly above one for most SSA countries. Fragile states have a lower short-term tax buoyancy reflecting their institutional weaknesses. Short-term buoyancy of personal income tax is significantly less than one. Both short- and long-run tax responses are lower than those reported in previous cross-country studies, which can be interpreted as a reduced power of both automatic stabilization in the short-run and fiscal sustainability in the long-run. Our results are robust to discretionary tax changes. We find that central government debt and shadow economy exert a downward pressure on tax buoyancy. An important implication of these results is that the current tax systems in SSA would not be able generate domestic revenues to the extend needed for financing the Sustainable Development Goals (SDGs). This is illustrated for the entire region and two SSA countries, Benin and Rwanda.

Suggested Citation

  • Sanjeev Gupta & Jianhong Liu, 2020. "Can Tax Buoyancy in Sub-Saharan Africa Help Finance the Sustainable Development Goals?," Working Papers 532, Center for Global Development.
    • Handle: RePEc:cgd:wpaper:532
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    Citations

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    Cited by:

    1. Mariam Diallo & Fleur Wouterse, 2023. "Agricultural development promises more growth and less poverty in Africa: Modelling the potential impact of implementing the Comprehensive Africa Agriculture Development Programme in six countries," Development Policy Review, Overseas Development Institute, vol. 41(3), May.
    2. repec:idq:ictduk:16977 is not listed on IDEAS
    3. Mick Moore, 2023. "Tax obsessions: Taxpayer registration and the “informal sector” in sub‐Saharan Africa," Development Policy Review, Overseas Development Institute, vol. 41(1), January.
    4. Mick Moore, 2021. "Glimpses of fiscal states in sub-Saharan Africa," WIDER Working Paper Series wp-2021-151, World Institute for Development Economic Research (UNU-WIDER).
    5. Jean Damascene Mvunabandi & Bomi Nomala & Ferina Marimuthu, 2024. "The Effect of Tax Avoidance and Tax Evasion on the Performance of South African Economy," International Journal of Economics and Financial Issues, Econjournals, vol. 14(1), pages 52-63, January.

    More about this item

    Keywords

    Tax buoyancy; Sustainable Development Goals; Error Correction Model; fiscal sustainability; sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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