The effects of taxation on income inequality in sub-Saharan Africa
This paper investigates the effects of taxation on income inequality in an unbalanced panel of 45 countries in sub-Saharan Africa over the period 1980–2018. We use instrumental-variable two-stage least squares and instrumental-variable quantile regression estimates.
We find that taxation widens income inequality. We also show that the increasing effects of taxation on income inequality are higher in the most unequal countries than in the least unequal countries.
Furthermore, we highlight an inverse U-shaped relationship between indirect taxes and income inequality. Governments in sub-Saharan Africa should increase indirect taxes to at least 28.36 per cent of gross domestic product in order to reap the dividends in terms of reducing inequality.