EconPapers    
Economics at your fingertips  
 

Optimal tax rate and economic growth. Evidence from Nigeria and South Africa

Olufemi Saibu ()

EuroEconomica, 2015, issue 1(34), 41-50

Abstract: The recent economic crisis had made developing countries to look inward for financial resources to finance development. The readily alternative is the tax revenues however, the possible adverse direct and indirect effects of tax on productivity and work efforts as well as on aggregate consumption had make some African countries (especially Nigeria and South Africa) reluctant in implementing far reaching tax policy reform. This paper examines optimal tax burden and real output growth Nigeria and South Africa, two of the top four economies in Africa. The paper empirically determined what should be the optimal tax rate for Nigeria and South Africa-the two leading economies in Africa. The paper found that nonlinearity hypothesis in the effects of tax in the case of South Africa is rejected while a significant nonlinear relationship is found in the case of Nigeria. The results suggest that the growth-maximizing tax rate is about 15% of per capita GDP for South Africa and 30% for Nigeria. At that tax rate, the economic growth rate would be around 6% and 8% instead of the actual mean growth rate of 2.84% and 4.51% for South Africa and Nigeria respectively. The paper concluded the current tax burden in the two countries may be sub-optimal and may hurt long term sustainable growth process in the two countries.

Keywords: growth; tax structure; fiscal policy, public finance (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
http://journals.univ-danubius.ro/index.php/euroeconomica/article/view/2586/2446 (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:dug:journl:y:2015:i:1:p:41-50

Access Statistics for this article

More articles in EuroEconomica from Danubius University of Galati Contact information at EDIRC.
Series data maintained by Florian Nuta ().

 
Page updated 2017-09-29
Handle: RePEc:dug:journl:y:2015:i:1:p:41-50