Free Trade and Tax Efficiency in the West African Economic and Monetary Union: what can we learn for the AFCFTA?
Authors: Calixe Bidossessi Alakonon and Alastaire Sèna Alinsato
Affiliations: Laboratoire d’Economie Publique, Université d’Abomey-Calavi, Benin; Laboratoire d’Economie Publique, Université d’Abomey-Calavi, Benin
Source: African Multidisciplinary Tax Journal, 2023 Issue 1, p. 69–89
The aim of this paper is to examine the effect of free trade on the tax efficiency of West African Economic and Monetary Union (WAEMU) countries. Specifically, the objective is, on the one hand, to determine the tax efficiency levels of the various taxes, and, on the other hand, to determine the influence of the common external tariff and trade openness on the tax efficiency of the various taxes in WAEMU countries. Using panel data over the period from 1980 to 2019, a stochastic tax frontier model is estimated to determine tax efficiency scores. A censored Tobit model is then used to assess the effect of free trade on the tax efficiency of countries. The results show respective average tax efficiency scores of 75.494%; 3.355%; 69.312% and 60.336% for total tax, direct tax, indirect tax and tax on foreign trade in WAEMU. In addition, the common external tariff and trade openness positively influence the tax efficiency of countries. However, the interaction between free trade and structural transformation, the quality of tax administration and income inequality reduce the tax efficiency of taxes. Decision-makers need to urgently take into consideration the structural transformation of economies, and the improvement of the efficiency of tax administrations in order to benefit from the application of the AfCFTA.