Tax Structure and Inclusive Growth in Selected Sub-saharan Africa Countries

Abstract

Sub-Saharan Africa has shown a disappointing record of accomplishment in the transition from economic growth to inclusive growth. The role of taxation in this regard has equally thrown up mixed reactions in both theoretical and empirical literature. Therefore, this study examines how tax structure can make regional economies more or less inclusive. It uses data spanning 1991 to 2020 for 12 selected sub-Saharan African countries. Both linear and Non-linear panel autoregressive distribution lag models were employed to analyse the relationship. The result established a long-run asymmetric relationship between tax structure and inclusive growth. It demonstrated clearly that progressive tax structure, public
expenditure on education, and trade openness have long-run positive impacts on inclusive growth. However, regressive tax structure has a negative but significant impact on inclusive growth. The study concluded that the relationship between tax structure and inclusive growth is asymmetric. It points out that, in sub-Saharan Africa, increasing progressive taxes promotes inclusive growth in the long run. However, the economic growth of the region becomes inclusive when people with broader financial shoulders carry the heaviest tax burden. The study, therefore, recommends implementing a progressive tax policy design, as this would foster inclusive growth in sub-Saharan Africa. It is equally recommended that revenue, particularly tax revenue, should be an infrastructure target.