The purpose of this study is to determine the direct effects of governance quality and its interactions with agricultural productivity and natural resource rents on tax revenue mobilization in Africa.
This study uses the system-generalized method of moment (Sys-GMM) to estimate the direct effects of six governance quality indicators and their interactions with the two structural variables selected. The analysis is conducted on a sample of 30 African countries from 2002 to 2021.
The results demonstrate that the six governance quality indicators have a significant and positive effect on revenue mobilization, in contrast to the significant and negative effects of the structural variables. However, the interactions of structural variables and governance indicators reveal that governance quality is the main factor conditioning the nature of the effects of these structural variables on tax revenue collection in Africa. Nevertheless, plotting the marginal effects of these structural variables over the full range of governance quality indicators provides a precise understanding of these indicators, which overcomes the negative impacts of structural variables on revenue mobilization.
The most important policy implication of the paper is that African countries should establish mechanisms to reduce corruption and political instability but also to promote good fiscal diversification and trade liberalization.
This study contributes to the current literature by (1) examining the direct effects of the six governance quality indicators on tax revenue mobilization in Africa and (2) analyzing the interactions between agricultural productivity and natural resource rents with these governance indicators.
