Does Tax Promote Industrial Development in Africa?

ISSN: 2709-8575
Source: African Multidisciplinary Tax Journal, 2024 Issue 1

Abstract

This research mainly examines the effect of taxation on industrial development in Africa using group average and aggregate group models with correlated common effects on a panel of 39 African countries over the period 1983-2020. Our results suggest that in the short term, taxation does not affect industrial development, but does affect industrial development in the long term. Thus, in the long term, a tax pressure rate lower than 33.88% would favor industrial development, on the other hand a tax pressure rate higher than 33.88% would disadvantage industrial development. It also emerges from our results that economic activity, financial development, the quality of institutions, gross fixed capital formation and foreign direct investment are the channels through which taxation affects industrial development in the long term. This study urges African states to adopt tax policies aimed at improving these channels.