Determinants of Tax Revenue in Liberia: An Empirical Investigation

Abstract

The need for the Liberian government to mobilize sufficient revenue for development is becoming increasingly important amid slow growth, increasing demand for infrastructure and citizens’ needs. This paper determines the factors that are likely to drive tax revenue performance. We gathered monthly time series data and employed the Johansen cointegration approach and VECM estimation technique. The empirical results reveal that, in the long run, tax revenue responds positively to real property, income and profit, property income, goods and service tax, administrative fees, import duties, excise tax, grant, loan, inflation and GDP Growth. Conversely, tax revenue responds negatively to social development contribution from agriculture and mining, real exchange rate and population growth.  Given these findings, we recommend, among others, that Liberia over-reliance on direct tax (i.e., PIT and CIT) revenue be mitigated. In particular, we recommend the adoption of a VAT regime in the place of the current GST regime