Tax effort performance in sub-Sahara Africa and the role of colonialism

Abstract

Governments in sub-Sahara Africa (SSA) have tended to rely unduly on foreign aid and debt financing for the provision of public goods such as health, basic education and infrastructure. Domestic tax revenue could play a significant role in funding such expenditures. However, to date tax revenue collection in SSA has only averaged about 15% of GDP. In this paper we employ cluster analysis to enhance our understanding in the variations in tax effort performance amongst SSA countries. Past studies of tax effort performance in SSA have resorted to economic events or factors to explain the tax effort performance. We argue here that it is necessary to consider historical events to provide a fuller explanation. We provide evidence to show that the different colonial policies pursued in SSA have had a long lasting and profound effect on the countries' tax revenue performance.