Determinants of tax revenue performance in the Southern African Development Community (SADC)

This paper investigates the determinants of tax revenue performance in all 15 Southern African Development Community countries during 1990-2010, using panel data. The investigation makes use of two estimation techniques in testing for country specificity. These are the least squares dummy variables fixed effects and the feasible generalised least squares by Park (1967) and Kmenta (1986). The extreme-bound analysis technique is also used in delineating the various causal relationships (including a sensitivity analysis). Prior to the estimation process, the study tested and controlled for applicable errors in the panel such as endogeneity, serial correlation, cross-sectional dependence of the error term, group-wise heteroscedasticity and contemporaneous correlation. The process addressed some major critique of panel data estimations involving large and small economies in a regional grouping like the SADC. The paper also introduces a value added tax harmonisation variable (and additionally made use of the corporate income tax harmonisation variables) through a tax policy harmonisation measure in investigating the impact of foreign direct investment and taxation on tax revenue collected. The results generally highlight the robust role of taxation (tax rates and tax policy harmonisation variables) (alongside other important determinants) in improving tax revenue in the region, providing empirical support for extant anecdotal evidence. The final empirical findings also confirm the importance of FDI inflows towards tax revenue collected in the SADC and the existence of reverse causality (that is, a causal relationship between FDI and taxation or vice versa). Policy considerations include the need for SADC countries to carry out extensive pro-regional (coordinated) tax reforms, create a regional tax forum and promote initiatives aimed at improving FDI and ultimately tax revenue (as per existing regional protocols).

Working paper 762
1 August 2018

Related South Africa’s Cities and Growth Spatial Challenges and Policy Interventions Content

Request for Proposals: The role of cities as drivers of growth and employment
Background Urbanization in South Africa is expected to reach 80% by...
Call for Work
South Africa’s future will be decided in our cities
Discussion Document 14 South Africa’s cities face multiple, overlap...
Dieter von Fintel, Justin Visagie, Ivan Turok, Takwanisa Machemedze, Claus Rabe, Sebastian Galiani, Edward Glaeser
Discussion Document
Monitoring South Africa’s metropolitan economies: A survey of the data landscape
Discussion Document 13 Disparities in data across different metropo...
Dieter von Fintel
Discussion Document
Cities, productivity and Jobs in SA: Problems and potential
Discussion Document 12 Cities contribute to national prosperity bec...
Ivan Turok, Justin Visagie
Discussion Document
Place-based economic policies: international lessons for South Africa
Discussion Document 11 Place-based policies are designed to support...
Harris Selod, Claus Rabe
Discussion Document
What luminosity data can and cannot reveal about South Africa’s urban economies
Discussion Document 10 As novel types of data are becoming availabl...
Takwanisa Machemedze
Discussion Document
Crime: A policy-oriented survey
Discussion Document 9 South Africa has a reputation for having high...
Sebastian Galiani
Discussion Document
Virtual CDE Workshop on SA Cities and Growth
Urban economics has provided powerful insights into how the charact...

Search Resources

Ground Floor Brookside Building
11 Imam Haron Road
Claremont, 7700
Cape Town

PostNet Suite # 109
Private Bag X1005
Claremont 7735
Cape Town

Get Social