Taxation, democracy, and inequality in Sub-Saharan Africa: Relevant linkages for sustainable development goals

Abstract

Given that the linear linkage between taxation and income inequality remains unclear, especially in Sub-Saharan African countries, it is critical to explore how the redistribution channel of the tax system could mitigate income inequality within democratic institutions. Using the instrumental variable approach for robust analysis, this study explores the panel dataset of 42 Sub-Saharan African countries from 1996–2014. The following findings are documented. First, both unconditional linkages between taxation and democracy overwhelmingly reduce income inequality. Second, harnessing democracy with taxation has a net effect that reduces income inequality. Overall, this study establishes that a strong democratic system strengthens the tax system for an income redistribution strategy to enhance income equality. This study is relevant for the achievement of Sustainable Development Goal (SGD) 1 on poverty reduction, SDG 10 on inequality, and SDG 16 on strong institutions.