Does Tax Revenue Improve Economic Complexity in Africa?

Ndoya, Hermann; Bakouan, Pousseni

doi:2023.38.2.278

Journal of Economic Integration 2023 June;38(2) :278-301.
DOI: https://doi.org/10.11130/jei.2023.38.2.278

Does Tax Revenue Improve Economic Complexity in Africa?

Hermann Ndoya ¹ and Pousseni Bakouan ²

¹World Bank, Washington DC, United States
²University Norbert Zongo, Burkina Faso

Corresponding Author: Hermann Ndoya ,Email: hndoyahegueu@worldbank.org

ABSTRACT

This study assesses the effect of tax revenue on economic complexity in Africa using a sample of 29 African countries from 1995 to 2018. Applying the system generalized method of moments (GMM), we found that tax revenue spurs economic complexity in Africa by providing countries with critical financial resources to produce complex and sophisticated goods. We performed several robustness tests, including controlling for macroeconomic volatility and employing various measures of economic complexity and tax revenue, and the results remain robust. Furthermore, the mediation analysis results show that the effect of tax revenue on economic complexity is mediated by financial development and government spending. This study advocates for government strategies to enact tax reforms and maximize tax revenue mobilization, which will help finance economic complexity.

Keywords: tax revenue | economic complexity | GMM | Africa