How Financial Sector Development Improve Tax Revenue Mobilization for Developing Countries?

Aguima Aime Bernard Lompo ()
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Aguima Aime Bernard Lompo: CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne

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Abstract: This study examines the effect of financial development on tax revenue mobilization in developing countries. Our empirical analysis uses the aggregate financial index that comprises the banking system's depth (size and activity), access, and efficiency of financial institutions and financial markets. Using panel data from developing countries over the period 1995-2017, our findings suggest that more developed financial sectors positively and significantly influence the government's ability to raise tax revenue. More interestingly, we find that this favorable effect is sensitive to developing countries characteristics, namely the level of economic development, the degree of financial openness and the stance of fiscal policies. When we more precisely look at the effects of disaggregated financial development components on tax revenues mobilization, we find that the estimated coefficients on the sub-components of financial development are statistically significant at least at 5 % of significance, except for the financial market's efficiency. The results denote that tax revenue in developing countries depends on financial institutions and financial markets. Finally, our results show that financial development contributes positively to tax revenue mobilization excluding resources.

Keywords: Financial development; Economic growth (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-cwa, nep-fdg and nep-isf
Note: View the original document on HAL open archive server: https://uca.hal.science/hal-03328502v1
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03328502

DOI: 10.1057/s41294-023-00207-9

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