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Determinants of tax capacity and tax effort in Southern Africa: An empirical analysis

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  • Robinson, Zurika
  • Chigome, Joyce
  • Robinson, Zurika

Abstract

Literature posits that numerous economic and institutional factors limit the amount of taxes that a country can raise. Against this background, the substantive aim of this study was to assess the determinants of tax capacity and tax effort in the SADC. A multi-step procedure was followed to estimate determinants of tax capacity and tax effort using stochastic tax function and unbalanced panel data for 13 SADC countries1. The study disentangled the error term to estimate the random effects separately from tax effort to capture the time-invariant country-specific effects. Further, tax effort was classified as persistent (long-run) and transient (short-run). The findings of the quantitative analysisindicate that financial deepening, economic development and trade openness influence tax capacity, while corruption and inflation influence tax effort. The SADC region has low persistent tax effort, implying that improving tax administration has superseded tax policy reforms. This result is augmented by the fact that tax legislation efforts were largely successful in tax administration but rather limited given tax policy. Tax policy designers should be informed by conditions of a country and policy considerations confirmed.

Suggested Citation

  • Robinson, Zurika & Chigome, Joyce & Robinson, Zurika, 2021. "Determinants of tax capacity and tax effort in Southern Africa: An empirical analysis," Working Papers 27752, University of South Africa, Department of Economics.
    • Handle: RePEc:uza:wpaper:27752
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    Cited by:

    1. Amutabi, Cyprian, 2023. "Domestic Resource Mobilization for Economic Development in Africa: Challenges, Policy Options, and Prospects in the New Horizon," MPRA Paper 118372, University Library of Munich, Germany.
    2. Dossè Mawussi Djahini‐Afawoubo, 2024. "Understanding tax payment behaviour in the West African Economic and Monetary Union: The role of perceived detection capacity and honesty," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(2), pages 795-823, March.
    3. Zhou, Shuya & Zhou, Peiyan & Ji, Hannah, 2022. "Can digital transformation alleviate corporate tax stickiness: The mediation effect of tax avoidance," Technological Forecasting and Social Change, Elsevier, vol. 184(C).
    4. Nico Groenendijk, 2023. "Revenue Capacity of the EU: Taxes, Tax Sharing, and Resource Pooling," Politics and Governance, Cogitatio Press, vol. 11(4), pages 6-16.

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    Keywords

    Tax capacity; tax effort; SADC;
    All these keywords.

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