Tax Effort in Sub-Saharan Africa

Abstract

Many sub-Saharan African countries face difficulty in raising tax revenue for public purposes. Low per capita incomes, an economic base in subsistence agriculture, poorly structured tax systems, and weak tax and customs administrations all contribute to difficulties in raising tax revenues.This study uses panel data on 43 sub-Saharan African countries during 1990-95 to measure the determinants of the tax share in GDP and to construct a measure of tax effort.The results indicate the extent to which countries make use of their potential tax bases to raise revenues and they can be used to provide guidance on the proper mix of fiscal policy in the event of budgetary imbalance.For 30 countries for which data on sectoral shares in value added are available, the analysis suggests that the shares of agriculture in GDP and mining in GDP are both negative and significantly related to the tax share, and that the export shares in GDP and per capita income are both positive and significantly related to the tax share. For 43 countries for which complete data on agricultural share in value added alone is available, the share of agriculture in GDP is again negative and significant, export share in GDP is again positive and significant, per capita income is not significant, and import share is positive and significant in some variants. No strong link between Fund programs and tax shares is found, on average. The measure of tax effort is constructed as the ratio of the actual tax share to the predicted (or potential) tax share. The results suggest that the countries with a relatively high tax share tend to have a relatively high tax index, although these results are not uniform across the countries. Table 2. Sub-Saharan African Countries: Tax Structure,

Local Financial Development and the Aid-Growth Relationship

“…Buliř and Hamann (2001) show that, given the uncertainty in aid flows, large aid flows could create difficulties in fiscal discipline. Lensink (1993) and Pillai (1982) find that total aid flows have a negative effect on government revenue, while Stotsky and Wolde Mariam (1997) find the contrary. Knack (2001) and Alesina and Weder (2002) find empirical support for the argument that higher aid levels erode the quality of governance or increase corruption.…”

Corruption in Tax Administration: Lessons from Institutional Reforms in Uganda

“…4 Still, in URA's corporate plan for 2002/03-2006/07, the target is to achieve a tax-to-GDP ratio of 17 per cent in 2006/07, which implies an annual increase in revenues by 1 per cent of GDP (URA 2002, p. 27). One should however be careful about drawing a too confident conclusion about successes and failures on the basis of the tax-to-GDP ratio since it tends to be a relatively imprecise measure of performance (Stotsky and WoldeMariam 1997). Nevertheless, increase in revenues measured as a percentage of GDP is the major performance criterion publicly announced by the Ugandan government, clearly reflected in the Budget Speeches of the Ministers of Finance and also in the URA's strategic plan.…”

Enlarging the European Union: Taxation and Corruption in the New Member States

“…These indices may indicate the appropriate policy for dealing with budget deficits. For example, countries with a high tax effort index may need to look at reducing expenditure rather than raising taxes (Stotsky and WoldeMariam, 1997). Figure 2 shows general government revenue as a percentage of GDP over the period 1996-2004 in the three regions, while it includes as benchmarks the USA and the EU-15 (the European Union of 15 member states as it existed before May 1, 2004).…”

“…These differences must be accounted for when measuring tax effort. Another approach, therefore, is using regression analysis across countries to predict a country's tax/GDP ratio (Bahl, 1971;Chelliah, 1971;Stotsky and WoldeMariam, 1997;Tait, Gratz, and Eichengreen, 1979;Tanzi 1968;Tanzi, 1992).…”