Abstract
The determination of the effects of macroeconomic environment on tax revenue is very vital for every country and more so for an economic community aiming for harmonization of macroeconomic environment and ultimately integration. However, the extent to which aggregate output, inflation, and unemployment affect tax revenue in ECOWAS has been less studied in the literature. Therefore, this study empirically investigates how tax revenue is related to selected macroeconomic variables. Panel data analysis is employed on six ECOWAS countries' data set on tax revenue, gross domestic product, inflation, unemployment, trade openness and exchange rate over 2005-2019. The Wald's test and Hausman test indicated that the fixed effects regression was appropriate for the study. The results showed that inflation was positively related to tax revenue and statistically significant at 5 percent. A unit increase in inflation led to 0.007 increase in tax revenue measure; economic growth was also positive and statistically significant at 5 percent; a unit rise in GDP resulted in 0.78 rise in governmental tax revenue variable. Finally, Tax revenue variable decreased by 0.10 with a unit increase in unemployment. It is recommended that ECOWAS countries should carefully manage their macroeconomic environment to boost tax revenue.
Highlights
Tax Revenue as one of the resources needed by the government of any nation of the world, either developing or developed, is very crucial in the discharge of duties and obligations (Michael, 2012 ; Bersley & Persson, 2014 ; Andersson & Lazuka, 2019).There are various sources of the revenue available to the government and its agencies for its efficient and effective functioning
According to Afuberoh and Okoye (2014) these sources include amongst others: revenue from natural resources, rents, royalties, foreign aid, grants, interests from loans, interest from capital investments, and tax revenue, which seems to be the oldest form of revenue
Exchange rate is positively related to tax revenue, but insignificant, implying that a unit increase in exchange rate leads to 0.000251 increase in tax revenue as percentage of GDP
Summary
Tax Revenue as one of the resources needed by the government of any nation of the world, either developing or developed, is very crucial in the discharge of duties and obligations (Michael, 2012 ; Bersley & Persson, 2014 ; Andersson & Lazuka, 2019).There are various sources of the revenue available to the government and its agencies for its efficient and effective functioning. Tax revenue is a revenue generated through taxation. According to Michael (2012), a tax instrument is a means by which a government generates a large amount of its revenue, manipulating the economy. The importance of revenue in general and tax revenue in particular cannot be underestimated or toyed with by any government if it will succeed in the discharge of its expected duties and obligations
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