Governance, domestic resource mobilization, and inclusive growth in sub-Saharan Africa

Abstract

This study investigates the role of governance in the resource mobilization-inclusive growth relationship. We explore the difference Generalized Method of Moments (GMM) estimation technique to examine this relationship in 27 sub-Saharan African countries for the period 1995–2015. This study uses aggregate tax and disaggregated taxes to capture domestic resource mobilization. The findings from our empirical analysis indicate that the persistence level of inclusive growth determines to a large extent, the current growth inclusiveness in the SSA region. The results show that the aggregate tax and disaggregated taxes do not have a significant impact on inclusive growth. The results also show a positive direct impact of all dimensions of governance on inclusive growth. All dimensions of governance have direct positive effect on inclusive growth. However, these dimensions exert no palpable catalytic role in enhancing the extent to which resource mobilization facilitates inclusive growth. By implication, the resource mobilization frame seems disconnected from the pace of governance as evident by low level of tax efforts while governance infrastructure is beginning to have some effects to galvanize benefits of economic growth to citizens. The results are indicative of how other seemingly easy sources of finance have been a distraction for the governments in the region. The tax efforts by governments are significantly low which make them less accountable to the citizens. These findings should prompt policymakers to develop reliable tax reforms coupled with quality governance to make growth inclusiveness in the region a reality. This will include building a strong database with information on taxpayers in the country at individual, corporation and external sector levels as well as quality institutions that will ensure accountability.