Examining the relationship between inclusive growth and tax revenue mobilization: additional evidence from sub-Saharan African countries

Opeoluwa Adeniyi Adeosun, Philip Akani Olomola, Adebayo Adedokun and Mosab I. Tabash

African Journal of Economic and Management Studies, 2024, vol. 16, issue 2, 219-236

Abstract: Purpose - The study investigates the influence of inclusive growth on tax revenue. It validates the fiscal exchange and resource bargaining theories, which suggest that tax compliance improves when citizens perceive that their tax contributions lead to enhanced welfare and that the government negotiates with people to provide public goods and services in exchange for taxes received. Design/methodology/approach - The paper employs inclusive growth measures, including an integrated GDP and equity growth measure and alternative proxies based on GDP per person employed and Asian Development Bank (ADB) inclusive growth indicators. Using 39 sub-Saharan African countries as a sample, our analysis captures spatial interactions across these contiguous countries using the Fixed-Effect model with the Driscoll and Kraay non-parametric consistent covariance matrix and the spatial Durbin Arellano–Bond linear dynamic panel generalized method of moment (Spatial GMM) approach with an interaction weight matrix to capture interactions between countries in the region. Findings - The paper shows that inclusive growth positively influences tax revenue in the region. This validates the fiscal exchange and resource bargaining hypotheses, demonstrating that tax compliance is positively influenced by public goods provision and the government’s ability to emphasize the necessity of taxes for service provision. It indicates that citizens are more willing to pay taxes when the government effectively promotes welfare. We find a significant positive spatial spillover effect, suggesting that inclusive growth not only boosts tax revenue within a specific country but also extends its benefits to neighboring countries, aligning with the spillover theory. Practical implications - The study posits that the government implements policies that guarantee effectiveness and accountability in public welfare delivery as well as sufficient tax bases and tax revenue. An inclusive growth policy that engenders GDP growth, employment and equity growth should be implemented since the rate of tax compliance of the citizens improves for every welfare provided by the government. Originality/value - This study tests the validity of the fiscal exchange and resource bargaining theories in Sub-Saharan Africa. Accommodating spatial dependence and cross-border effects, the study sheds light on how inclusive growth impacts tax revenue across contiguous countries in the region. As such, the region should prioritize regional integration, fostering economic ties and harmonizing policies through knowledge sharing and cross-border investment.

Keywords: Tax; Inclusive growth; Fiscal exchange; Spatial panel econometrics; Africa (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:ajemsp:ajems-11-2023-0435

DOI: 10.1108/AJEMS-11-2023-0435

Access Statistics for this article

African Journal of Economic and Management Studies is currently edited by Prof John Kuada

More articles in African Journal of Economic and Management Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().