The effect of illicit financial flows on government revenues in the West African Economic and Monetary Union countries

Abstract

This is a study of the effect of illicit financial flows on government revenues in the West African Economic and Monetary Union countries. The study uses data from 8 countries and covering the 1996-2013 period. Using an empirical investigation with instrumental variables, the study found that illicit financial flows had a negative and significant effect on government revenues and that this effect was tied to per capita income, corruption and governance. It further highlighted the significance of the per capita income in the relationship between illicit financial flows and government revenues. The study therefore recommends that the governments should strengthen their tax collection capacity to better identify and prevent certain illegal activities associated with illicit financial flows. At the regional level, the West African Economic and Monetary Union Commission should consider setting up an appropriate illicit financial flows consultative body that would bring together state and non-state actors and serve as a platform for consultation and discussing illicit financial flows issues. With regard to the per capita income as the main transmission channel, governments should put in place the incentives that people need to keep and invest a large part of their profits and savings in their countries origin.

Trade misinvoicing and domestic resource mobilization in Nigeria

“…This result follows conventional knowledge and corroborates theoretical expectations. It also lends support to the studies of L epissier et al (2021), Thiao (2021) and Uzoechina et al (2021), who found that trade misinvoicing reduces government revenue and undermines domestic resource mobilization in developing countries.…”

“…Thus, trade misinvoicing is used synonymously with illicit financial flows in this review section. Thiao (2021) evaluated the effect of illicit financial flows on government revenue and government capacity in the West African Economic and Monetary Union (WAEMU). The result showed that illicit financial flows lower government revenue and reduce the government's capacity to provide public products and services to its citizens.…”

“…The budget response model, developed by Heller (1975) but modified by Leuthold (1991) and Thiao (2021), is adopted as the theory underlying the nexus between domestic resource mobilization and trade misinvoicing. The model assumes government to be a rational agent, Trade misinvoicing and domestic resource whose objective function is to maximize utility subject to its budget constraint.…”

“…Given that tax revenue is only a small fraction of total government revenue in Nigeria as oil revenue dominates Nigeria's revenue profile, this study adopts the government revenue mobilization ratio as the measure of domestic resource mobilization. This measure, unlike the tax burden ratio, is less responsive to the substitution effect among the diverse public resources (Thiao, 2021). All the variables except trade misinvoicing and trade openness are in percentages.…”

Digitalization of Romanian Public Administration: A Panel Data Analysis at Regional Level

“…A SUR model is an application of the GLS approach, and the unknown residual covariance matrix is estimated from the data and has the advantage of being less cluttered (Wooldridge, 2010). Since then, the method has been applied in a series of studies with a variety of subjects (Adrangi & Kerr, 2022;Bojanic, 2020;Thiao, 2021). We applied logarithmic transformation for LocalTax, Pay, GDPpc, and Anet_E in order to have robust estimates coefficients (Fratila et al, 2021;Mudronja et al, 2020).…”