Impact of Shadow Economy on Tax Revenue in Sub-Saharan Africa
DOI:
https://doi.org/10.33003/fujafr-2024.v2i4.130.1-10Keywords:
Shadow Economy, Trade Openness, Tax RevenueAbstract
This study tends to focus on how shadow economy and trade openness influence tax revenue in the Sub-Saharan Africa (SSA). The study used four SSA countries to test this relationship from 1991 to 2017. The study employs pool OLS with robust standard error to address the potential threat of heteroscedasticity. The result from this estimation indicate that shadow economy diminished the amount of tax revenue generated by these countries. Thus, the study recommends that appropriate measures should be put in place to curtail the size of the shadow economy because of its detrimental effects on tax revenue.
References
Agbeyegbe, T. D., Stotsky, J., & WoldeMariam, A. (2006). Trade liberalization, exchange rate changes, and tax revenue in Sub-Saharan Africa. Journal of Asian Economics, 17(2), 261–284. DOI: https://doi.org/10.1016/j.asieco.2005.09.003
Alm, J., & Benno, T. (2006). Culture differences and tax morale in the United States and in Europe. Journal of Economic Psychology, 27(2), 224–246. DOI: https://doi.org/10.1016/j.joep.2005.09.002
Ameyaw, B., Oppong, A., Aba Abruquah, L., & Ashalley, E. (2016). Informal sector tax compliance issues and the causality nexus between taxation and economic growth: Empirical evidence from Ghana. Modern Economy, 7(12), 1478-1497. DOI: https://doi.org/10.4236/me.2016.712134
Angour, N., & Nmili, M. (2019). Estimating shadow economy and tax evasion: evidence from Morocco. International Journal of Economics and Finance, 11(5), 7–20. DOI: https://doi.org/10.5539/ijef.v11n5p7
Baltagi, B. (2005). Econometric analysis of panel data (3rd ed.). John Wiley & Sons, West Sussex England.
Benjamin, N., Mbaye, A. A., & Diop, I. T. (2012). The informal sector in Francophone Africa: firm size, productivity, and institutions. World Bank Publications. DOI: https://doi.org/10.1596/978-0-8213-9537-0
Buehn, A., & Schneider, F. (2012). Shadow economies around the world: What do we really know? International Tax and Public Finance, 19, 139–171. DOI: https://doi.org/10.1007/s10797-011-9187-7
Chauke, K. R., & Sebola, M. P. (2016). Revenue collection in South Africa: a comparative analysis of South African Revenue Services and the South African municipalities. Journal of Public Administration, 51(3), 423-435.
D’Souza, E. (2016). A theory of tax evasion in developing countries Errol D’Souza W.P. no. 2016-03-37 March 2016. India Institute of Management.
Esaku, S. (2021). Does income inequality increase the shadow economy? Empirical evidence from Uganda. Development Studies Research, 8(1), 147–160. DOI: https://doi.org/10.1080/21665095.2021.1939082
Etim, E., & Daramola, O. (2020). The informal sector and economic growth of South Africa and Nigeria: A comparative systematic review. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 134. DOI: https://doi.org/10.3390/joitmc6040134
Evers, H.-D., & Korff, R. (2002). Urbanisation in Southeast Asia: Meaning and power in social spaces. Indonesian Torch Library Foundation.
Fedotov, D. Y. (2021). Tax burden and shadow economy growth in Russian regions. Journal of Tax Reform, 7(3), 284–301. DOI: https://doi.org/10.15826/jtr.2021.7.3.104
Gnangnon, Sena Kimm. (2019). Tax reform and trade openness in developing countries. Journal of Economic Integration, 34(3), 498–519. DOI: https://doi.org/10.11130/jei.2019.34.3.498
Gnangnon, Sena Kimm. (2023). Effect of the shadow economy on tax reform in developing countries. Economies, 11(3). DOI: https://doi.org/10.3390/economies11030096
Gnangnon, Sèna Kimm. (2022). Internet, participation in international trade, and tax revenue instability. Journal of Economic Integration, 37(2), 267–315. DOI: https://doi.org/10.11130/jei.2022.37.2.267
Hassan, M. and Scheider, F. (2016), Size and development of the shadow economies of 157 worldwide countries: Updated and new measures from 1999 to 2013, Journal of Global Economics (4)3. DOI: https://doi.org/10.2139/ssrn.2861026
Ishak, P. W., & Farzanegan, M. R. (2020). The impact of declining oil rents on tax revenues: does the shadow economy matter? Energy Economics, 92, Article 8132 Provided. DOI: https://doi.org/10.1016/j.eneco.2020.104925
Kim, K. (2022). Assessing the impact of mobile money on improving the financial inclusion of Nairobi women. Journal of Gender Studies, 31(3), 306-322. DOI: https://doi.org/10.1080/09589236.2021.1884536
Kodila-Tedika, O., & Mutascu, M. (2014). Shadow economy and tax revenue in Africa. Economics Bulletin, 34(1), 469–479.
Krivorotov, V. V., Kalina, A. V., & Podbereznaya, M. A. (2019). Assessment of the scale of the spread of the shadow economy at the regional level. Bulletin of the Ural Federal University. Series: Economics and Management, 18(4), 540–555. DOI: https://doi.org/10.15826/vestnik.2018.17.4.027
Kumar, R., Mahajan, S., & Singla, R. (2021). Taxation and the informal economy in developing countries: Challenges and solutions. International Journal of Economics and Finance, 13(1), 33-45.
Loganathan, N., & Ahmad, N. (2020). The dynamic effects of growth, financial development and trade openness on tax revenue in Malaysia. International Journal of Business and Society, 21(1), 42–62. DOI: https://doi.org/10.33736/ijbs.3222.2020
López, J. J. (2017). A quantitative theory of tax evasion. J. Macroecon. 53, 107–126. DOI: https://doi.org/10.1016/j.jmacro.2017.06.005
Mannan, K. A., Farhana, K. M., and Chowdhury, O. F. (2021). Social network and tax evasion: theoretical model and empirical evidence in Bangladesh. Cost Manag. 49, 14–32.
Marcelliis, E., Williams, C. C., & Joassart, P. (2010). Informal work in developed nations. DOI: https://doi.org/10.4324/9780203874455
Mazhar, U., & Méon, P. G. (2017). Taxing the unobservable: The impact of the shadow economy on inflation and taxation. World Development, 90, 89–103. DOI: https://doi.org/10.1016/j.worlddev.2016.08.019
Medina, L., & Schneider, F. (2017). Shadow economies around the world: New results for 158 countries over 1991-2015 (No. 6430; CESifo Working Paper,). DOI: https://doi.org/10.2139/ssrn.2965972
Medina, L., & Schneider, F. (2020). Shedding light on the shadow economy: A global database and the interaction with theoOfficial one. World Economics, 21(2). DOI: https://doi.org/10.2139/ssrn.3502028
Medina, L., & Schneider, F. (2018). Shadow economies around the world: What did we learn over the last 20 years? International Monetary Fund Working Paper DOI: https://doi.org/10.5089/9781484338636.001
Meagher, K. (2018). Taxing times: Taxation, divided societies and the informal economy in Northern Nigeria. The Journal of development studies, 54(1), 1-17. DOI: https://doi.org/10.1080/00220388.2016.1262026
Ngouhouo, I., Nchofoung, T., & Njamen Kengdo, A. A. (2021). Determinants of trade openness in Sub- Saharan Africa: do institutions matter? International Economic Journal, 35(1), 96–119. DOI: https://doi.org/10.1080/10168737.2020.1858323
Nguyen, V. D., & Duong, T. H. M. (2022). Corruption, shadow economy, FDI, and tax revenue in BRICS: a Bayesian approach. Montenegrin Journal of Economics, 18(2), 85–94. DOI: https://doi.org/10.14254/1800-5845/2022.18-2.8
Nurjaman, A. (2020). Political Economy in Theory and Practice (Vol. 1). UMMPress.
Ogbuabor, J. E., & Malaolu, V. (2013). Size and causes of the informal sector of the Nigerian economy: Evidence from error correction mimic model. Journal of Economics and Sustainable Development. 4, 85–103.
Richardson, G. (2006). Determinants of tax evasion: A cross-country investigation. Journal of International Accounting, Auditing and Taxation, 15(2), 150–169. DOI: https://doi.org/10.1016/j.intaccaudtax.2006.08.005
Rogers, W. H. (1993). Regression standard errors in clustered samples. Stata Technical Bulletin, 13, 19–23.
Sandmo, A. (2005). The theory of tax evasion: a retrospective view. Natl. Tax J. LVIII, 643–663. DOI: https://doi.org/10.17310/ntj.2005.4.02
Schneider, F. (2014). The shadow economy: An essay. http://www.econ.jku.at/schneider16.06.2014
Schneider, F., Bogdan, K. R., & Mróz, B. (2015). Shadow economy and tax evasion in the EU. Journal of Money Laundering Control, 18(1), 34–51. DOI: https://doi.org/10.1108/JMLC-09-2014-0027
Schneider, F., & Enste, D. H. (2013). The shadow economy: An international survey. Cambridge University Press. DOI: https://doi.org/10.1017/CBO9781139542289
Sutina, E. A., Zhigalova, O. V., & Tuganova, E. A. (2020). The state and dynamics of the shadow sector of the economy in the Ulyanovsk region. Bulletin of the Catherine Institute, 1(49), 56–60.
Torgler, B., & Schneider, F. (2007). Shadow economy, tax morale, governance and institutional quality: a panel analysis. (No. 1923; CESifo Working Paper). DOI: https://doi.org/10.2139/ssrn.960012
Torgler, B., & Schneider, F. (2009). The impact of tax morale and institutional quality on the shadow economy. Journal of Economic Psychology, 30, 228–45. DOI: https://doi.org/10.1016/j.joep.2008.08.004
Vlachaki, M. (2015). The impact of the shadow economy on indirect tax revenues. Economics and Politics, 27(2), 234–265. DOI: https://doi.org/10.1111/ecpo.12054
Williams, C. C., & Horodni, I. A. (2015). Explaining and tackling the shadow economy in Estonia, Latvia and Lithuania: a tax morale approach. Baltic Journal of Economics, 15(2), 81–89. DOI: https://doi.org/10.1080/1406099X.2015.1114714
Williams, C. C. (2014). Confronting the Shadow Economy: evaluating tax compliance and behaviour policies. Edward Elgar Publishing. DOI: https://doi.org/10.4337/9781782546047
Williams, C. C., & Nadin, S. (2011). Theorizing the hidden enterprise culture: the nature of entrepreneurship in the shadow economy. International Journal of Entrepreneurship and Small Business, 14(3), 334–348 DOI: https://doi.org/10.1504/IJESB.2011.042757
Yu., S. V., & Fedonina, E. V. (2019). Analysis of the impact of taxation on the activities of economic entities. Models, Systems, Networks in Economics, Engineering, Nature and Society., 4(32), 40–49.
Downloads
Published
Issue
Section
License
Copyright (c) 2024 FUDMA Journal of Accounting and Finance Research [FUJAFR]
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
The FUDMA Journal of Accounting and Finance Research (FUJAFR) operates a copyright policy that ensures a balance between author rights and wide dissemination of scholarly work.
1. Author Copyright Retention
Authors retain full copyright of their published work without restriction. Submission to FUJAFR does not transfer ownership of copyright to the journal.
2. License to Publish
By submitting a manuscript and upon acceptance, authors grant FUJAFR:
- The right to publish, reproduce, and distribute the article
- The right to identify itself as the original publisher of the work
This grant is non-exclusive, meaning authors are free to reuse their work in other contexts, provided proper acknowledgment of the original publication in FUJAFR is made.
3. Licensing of Published Content
All articles are published under the:
Creative Commons Attribution-NonCommercial License (CC BY-NC 4.0)
Under this license:
- Users may share and adapt the work for non-commercial purposes only
- Proper attribution to the author(s) and the journal is required
- Any commercial use requires explicit permission from the copyright holder
4. Author Reuse Rights
Authors are permitted to:
- Archive their published articles in institutional repositories or personal websites
- Share their work for educational and research purposes
- Reuse portions of their work in future publications (e.g., books or other articles), provided proper citation of the original publication is included
5. Third-Party Content
Authors are responsible for obtaining permission to use any third-party copyrighted material (e.g., images, tables, datasets) included in their manuscripts. Proper acknowledgment must be provided where required.
6. Attribution Requirement
All users of FUJAFR content must provide appropriate credit, including:
- Author name(s)
- Article title
- Journal name (FUJAFR)
- Year of publication
