The aim of this study is to analyze the moderating role of financial development on the causal relationship of taxation and economic growth of Sub-Saharan Africa (SSA) countries.
The positivist research paradigm coupled with objectivist epistemology, deductive research approach and the causal-comparative research design was adopted. Secondary data was collected from different databases, including the World Development Indicators and the IMF Financial Development Index Database. About 36 SSA countries were selected based on the availability of data for the period 1980–2022. Cross-sectionally augmented autoregressive distributive lag and cross-sectionally augmented distributive lag were used.
The findings of the study show that tax burden negatively affects the region’s economic growth. Given the adverse effect of taxation, financial development has a mitigating role in the negative effect of taxation on economic growth. That is, as the financial development gets improved from time to time, the adverse effect of taxation on economic growth of the region can be diminished or reduced.
This study provides new insight by providing evidence on the moderating role of financial development on the causal association of taxation and economic growth of SSA using a considerably long period and applying a contemporary estimation technique. Furthermore, unlike most of the previous studies conducted in the area, it used an overall index developed by the IMF to measure financial development.
