Abstract

This study examines whether the African Continental Free Trade Area (AfCFTA) can strengthen domestic revenue mobilisation in ECOWAS countries through increased intra-African trade. AfCFTA-induced trade potential is first estimated using a structural gravity model with high-dimensional fixed effects and Poisson pseudo-maximum likelihood over the period 2000–2022. The estimated trade potential is then incorporated into a dynamic system GMM framework to assess its impact on domestic tax revenues, with robustness checks based on alternative estimators and the tax to GDP ratio. The results indicate that the AfCFTA significantly increases trade potential, revealing an untapped intra-African trade potential of about 11%. The findings further show that AfCFTA-induced trade potential positively affects domestic tax revenues, supporting the fiscal transition hypothesis. The study contributes by integrating structural gravity estimates with dynamic panel analysis and highlights the need for complementary domestic tax reforms to maximise the fiscal benefits of regional integration.