Does tax pressure justify informality in sub-Saharan Africa?

La pression fiscale justifie-t-elle l'informalité en Afrique subsaharienne ?

Gracy Tsongo (), Anselme Paluku Kitakya and Rodrigue Muhindo Kalere
Additional contact information
Gracy Tsongo: UNIGOM - Université de Goma
Anselme Paluku Kitakya: UNIGOM - Université de Goma
Rodrigue Muhindo Kalere: UNIGOM - Université de Goma

Post-Print from HAL

Abstract: Informality is an obstacle to economic development. Liberal authors associate it with clandestine operations carried out with the aim of evading public regulations, the costs of which are considered exorbitant. This paper aims to examine the effects of fiscal pressure on the size of the informal economy in Sub-Saharan Africa. To better achieve this objective, an empirical approach was adopted on a panel of 30 countries in this region over the period 2000-2017. The variables of tax pressure and informality were measured respectively by an intuitive indicator, i.e. the ratio of tax revenue to GDP, and by the size of the informal economy as a percentage of GDP observed on the basis of the multiple indicators multiple causes model (MIMIC). The estimates were carried out using a dynamic panel model by the system generalized method of moments and reveal the existence of positive effects of the tax pressure on informality. These effects are much more pronounced in low-income countries than in middle-income countries in the robustness checks of different income groups. In these countries, the informal sector is characterized by small production units with low sales. Excessive tax regulations suffocate these entrepreneurs, who prefer to remain in the informal sector or take refuge in it because of the complexity of procedures and tax harassment. The ensuing economic policy implications concern, on the one hand, the stimulation of aggregate demand by governments, by prioritizing social spending to enable businesses to increase their production levels and obtain consistent profits that will enable them to bear the tax burden, and on the other hand, the simplification of registration procedures, the reduction of formalization costs and the digitization of the tax collection process.

Keywords: Informality Tax Pressure Generalized Method of Moment Sub-Saharan Africa. JEL Classification: H32 Paper type: Empirical research; Informality; Tax Pressure; Generalized Method of Moment; Sub-Saharan Africa. JEL Classification: H32 Paper type: Empirical research (search for similar items in EconPapers)
Date: 2023-10-31
New Economics Papers: this item is included in nep-inv, nep-iue and nep-mac
Note: View the original document on HAL open archive server: https://hal.science/hal-04315661
References: Add references at CitEc
Citations:

Published in International Journal of Accounting, Finance, Auditing, Management and Economics, 2023, 4 (5-2(2023)), pp. 1097-1112. ⟨10.5281/zenodo.10051711⟩

Downloads: (external link)
https://hal.science/hal-04315661/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04315661

DOI: 10.5281/zenodo.10051711

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().