Economic Governance Quality and Effective Taxation System in Africa

Abstract

Abstract The study aims at examining the effect of Economic governance institutions on tax revenue mobilization using an empirical panel dataset from 30 African countries for the period 1996–2018. The empirical estimation methods employed in this study is based on Quantile Regression techniques. To this end, one bundled economic governance institution indicator (i.e., general economic governance) is employed. The inspiration for this estimation technique is based on two fundamental reasons. First, the argument that the effect of governance quality on taxation effectiveness is contingent on the existing level of tax revenue mobilization. Second, the economic governance – tax revenue mobilization policies, to be effective, need to be tailored differently across countries with low, intermediate and high levels of tax mobilization effort. The general findings are as follows: First, development in economic governance institutions promotes tax mobilization effort. Second, the effect of economic governance is stronger in terms of significance and magnitude for direct taxes than for indirect taxes. Third, in most of the cases, the impact of economic governance institutions is higher in terms of magnitude in the upper quantiles of the economic governance distributions. The results remain robust over alternative econometric estimation techniques.