Journal of Economics and Business
ISSN 2615-3726 (Online)
ISSN 2621-5667 (Print)
Published: 07 September 2020
Reduction of Income Inequality in Sub-Saharan Africa: Which Fiscal Instrument Matters?
Ambassa Messy Martin
University of Maroua, Cameroon
Download Full-Text Pdf
Keywords: Fiscal instruments, Income Inequality, SSA, instrumental variables
The existing literature is inconclusive on the relationship between fiscal instruments and income inequality. Many governments concerned with issues of income redistribution have paid attention to the way in which tax revenues are collected. In this study we shed new light on this issue by empirically investigating which between weight of tax revenues and tax structure used to collect revenues is more important in reducing income inequality in SSA. We use panel data on 34 Sub-Saharan Africa (SSA) countries over the period of 1992- 2014. Our model was inspired by the model developed by Martinez-Vazquez and al. (2012) and modified by Dao and Godbout (2014). We present both conventional fixed effect regressions and instrumental variable analyses, where fiscal instruments using the employment rate and the proportion of the working-age population as an instrument. The results reveal that the fiscal instrument tax revenues are count much more in reducing inequalities than the fiscal instrument used to collect revenues. The results are robust to different econometric specifications.
ALAVUOTUNKI, K., HAAPANEN, M., and PIRTTILÄ, J. (2018) “The Effects of the Value-Added Tax on Revenue and Inequality”, The Journal of Development Studies.
BASTAGLI, F., COADY, D., and GUPTA, S. (2012) “Income Inequality and Fiscal Policy”, IMF Staff Discussion Note.
BOVA, E., KINDA, T., WOO, J., and ZHANG, Y. S. (2013) “Distributional Consequences of Fiscal Consolidation and the Role of Fiscal Policy: What Do the Data Say?” Cahier de recherche IMF.
BUCELLATO, T., and ALESSANDRINI, M. (2009) “Natural Resources: A Blessing or a Curse? The Role of Inequality”, Discussion Paper Center for Financial Management Studies, n° 98.
CIMINELLI, G., EKKEHARD, E., MEROLA, R., and GIULIODORI, M. (2018) “The composition effects of tax-based consolidation on income inequality”, European Journal of Political Economy.
DAO, H., and GODBOUT, L. (2014) “Le rôle de la fiscalité dans la réduction des inégalités : doit-on se soucier de la structure fiscale servant à prélever les recettes ? ” L’Actualité économique, Revue d’analyse économique, Vol. 90, n° 4, 304-328.
DOUMBIA, D., and KINDA, T. (2019) “Reallocating Public Spending to Reduce Income Inequality: Can It Work?” IMF Working Papers, WP/19/188.
EROSA, A., and VENTURA, G. (2002) “On Inflation as a Regressive Consumption Tax”, Journal of Monetary Economics, Vol. 49, n° 4, 761–95.
EASTERLY, W., and FISCHER, S. (2001) “Inflation and the poor” Journal of money, credit and banking, Vol. 33, n°2, 160-78.
FMI. (2015) “Perspectives économiques régionales : Afrique Subsaharienne face à un environnement qui se dégrade”, Études économiques et financières, Fonds Monétaire International.
FOURNIER, J.-M., and JOHANSSON, A. (2016) “The Effect of the Size and the Mix of Public Spending on Growth and Inequality”, OECD Economics Department Working Paper, n°1344.
FRANCOIS, J., and NELSON, D. (2003) “Globalization and Relative Wages: Some Theory and Evidence”, GEP Research Paper Nottingham, United Kingdom: University of Nottingham. Vol. 3, n°15,
FUM, R., and HODLER, R. (2010) “Natural resources and income inequality: The role of ethnic divisions”, Economics Letters, Vol. 107, 360–363.
GALOR, O., and ZEIRA, J. (1993) “Income Distribution and Macroeconomics”, The Review of Economic Studies, Vol. 60, n°1, 35–52.
JACQUEMOT, P., and RAFFINOT, M. (2018) “La mobilisation fiscale en Afrique”, Revue d’économie financière, n°131, 243-263.s
KUZNETS, S. (1955) “Economic Growth and Income Inequality”, American Economic Review, Vol. 45, n° 1, 1-28.
MAHESH, M. (2016) ''The effects of trade openness on income inequality evidence from BRIC countries”, Economics Bulletin, Vol. 36, n°3,1751-1761.k
MARTINEZ-VAZQUEZ, J., MORENO-DODSON, B., and VULOVIC, V. (2012) “The impact of tax and expenditure policies on income distribution: evidence from a large panel of countries”, Review of public economics, Vol. 200, n° 4, 95-130.
MARTORANO, B. (2018) “Taxation and inequality in developing countries: lessons from the recent experience of Latin America”, Journal of International Development, Vol. 30, 256–273.
MIRRLEES, J. (1971) “An Exploration in the Theory of Optimum Income Taxation”, Review of Economic Studies, Vol. 38, n° 114, 175–208.
PIKETTY, T. (2015) “Putting distribution back at the center of economics: reflections on capital in the twenty-first century”, Journal of Economic Perspectives, Vol. 29, n° 1, 67-88.
RUUD DE MOOIJ, MATHESON, T., and SCHATAN, R. (2015) “International Corporate Tax Spillovers and Redistributive Policies in Developing Countries” in Inequality and fiscal policy / edited by Benedict Clements, Ruud de Mooij, Sanjeev Gupta, and Michael Keen. Washington, D.C.: International Monetary Fund.
SAEZ, E. (2017) “Income and wealth inequality: evidence and policy implications”, Contemporary Economic Policy, Vol. 35, n°1, 7–25.
SAEZ, E. (2004) “Direct or indirect tax instruments for redistribution: short-run versus long-run”, Journal of Public Economics, Vol. 88, 503– 518.
SCHMIDT-TRAUB, G. (2015), “Investment Needs to Achieve the Sustainable Development Goals Understanding the Billions and Trillions”, Sustainable Development Solutions Network, Working paper.
STIGLITZ, J. (2015) “The Great Divide Unequal Societies and What We Can Do About Them”, New York: W.W. Norton and Company.
STIGLITZ, J. (2012) “Le prix de l’inégalité”, ed. Babel.