Taxation, Inequality and Poverty in Sub-Saharan Africa : A Panel Data Approach

The study investigated the impact of taxation on poverty and inequality in 14 Sub-Saharan African countries in a strongly balanced panel spanning from 1990 to 2010 using data from World Bank, IMF, IBFD, and Government Revenue Database (GRD). The study employed the Bayesian Model Averaging, Simple Panel Models and the GMM models to ascertain the impact of taxation on inequality and poverty. The results revealed that the more progressive a tax system is, the less the inequality and that a higher tax effort reduces poverty. Another interesting result was that while rising tax proportion of GDP reduces poverty, it is bound to worsen inequality. Policy implications arising from the study include: gradual expansion of the tax base, limiting the use of differentiated rates, utilization of withholding and presumptive taxes, transparency and simplicity of the tax system. Additionally, SSA governments are urged to adopt multi-bracketed tax systems to curb inequality