Effect of the Quality of Institutions on the Tax Structure in West African Economic and Monetary Union Countries (WAEMU)

Aichatou Mourfou,Idrissa Mohamed Ouedraogo

doi:10.11648/j.jbed.20210601.11

Abstract

The objective of this paper is to analyze the effect of the quality of institutions on the different types of tax revenues, in particular on the total tax revenue, the direct tax revenue, the domestic indirect tax revenue and the trade tax revenue. The econometric analysis used the Pooled Mean Group (PMG) estimator over the period from 1996 to 2015. The results of the estimates show that in the WAEMU zone, the quality of institutions has a positive and significant effect on all types of tax revenues except for trade tax revenue. These results are robust because they do not change according to the different indicators used to measure the quality of institutions. Furthermore, overall, GDP per capita positively and significantly affects total and indirect domestic tax revenue, while it has a negative effect on direct tax revenue. Trade openness has a positive and significant effect on all types of tax revenues, except for indirect domestic tax revenue. The share of agriculture has a positive and significant effect on all types of revenue except trade tax revenue. Inflation has a negative and significant effect on all types of tax revenues. The share of natural resources and the size of the informal sector show mixed results.

Highlights

One of the major challenges facing most developing countries is undoubtedly the increased mobilization of tax revenues
According to data from the African Development Bank (ADB, 2018), the Union's total fiscal revenue rate is 14.97 as a percentage (%) of the Gross Domestic Product (GDP) as an annual average. over the period 1996-2015; which is below the 20% threshold which is the minimum tax revenue rate suggested in the context of multilateral surveillance of West African Economic and Monetary Union Countries (WAEMU) countries
This means that an improvement in the quality of institutions favors a better mobilization of overall tax revenues in WAEMU countries: a one-point improvement in the quality of WGI institutions leads to an increase in the total tax revenue by 2.014 percentage points

Summary

Introduction

One of the major challenges facing most developing countries is undoubtedly the increased mobilization of tax revenues. In the particular case of the countries of the WAEMU, especially Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, the issue of tax resource mobilization is much more crucial, as these economies are characterized by significant financing needs to ensure their development. Aware of this situation, these countries have, since the 1990s, adopted tax reforms with a view to improving tax revenue mobilization. It is lower, than the average fiscal revenue of the countries of the Organization for Economic Co-operation and Development (OECD) which is equal to 33.4% of the GDP, and and above all, that of the countries Africa which stands at around 16% of GDP over the same period

Objectives

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Conclusion