Electricity fluctuations and tax revenue in Sub-Saharan Africa: insights from a bias-corrected linear dynamic panel model

Abstract

Electricity is an important ingredient for development; however, inadequate electricity supply and its frequent fluctuations adversely affect the productivity and profits of small and medium enterprises in sub-Saharan Africa (SSA). In turn, the adverse effects pose challenges to economic growth and subsequently narrow further the low tax base in the region. Information regarding the macroeconomic effects of electricity fluctuations on the tax base in SSA is limited, thus calling for a detailed and refined study of this nature to analyse the effect of electricity fluctuations on the tax base in SSA. A bias-corrected linear dynamic estimator is employed for the analysis using a panel dataset for 41 SSA countries from 2000 to 2022. The results show that electricity consumption is positively related to the tax base in SSA while electricity fluctuation creates fiscal losses in terms of narrowing the tax base. Specifically, gross capital formation and informal economic activities are adversely affected by electricity fluctuations. This is a dramatic dampening effect that requires policy attention. The results indicate that the African governments in SSA need to increase investments in (including renovation of) the electricity infrastructures and diversify sources of energy into visible and tangible levels. This is because unreliable supply of electricity denies these countries the benefit of digital transformation, especially internet access. Sustaining the pace of stable and reliable electricity is paramount for economic growth and the growth of tax revenue in SSA countries. The article offers a highlight in energy policy review to include reliability as a prime concern for elevating economic growth and tax base in SSA countries.

Impact statement

The findings suggest that African countries should speed up renovating/investing in electricity infrastructures that would enable expanded access to electricity and the Internet, among other digital transformation opportunities. Furthermore, policymakers and communities in SSA should continue expanding their knowledge on another source of energy (including renewable energy) in view of ensuring sustainable and reliable access to electricity in the region to support economic growth and subsequent expansion of the tax base.

Keywords:

• Corrected bias
• tax base
• electricity fluctuations
• sub-Sahara Africa

REVIEWING EDITOR:

• Chris Jones, Aston University, Economics, Finance & Entrepreneurship, United Kingdom

SUBJECTS:

• Public Sector Economics
• Agricultural Economics
• International Trade

Acknowledgements

I am grateful to acknowledge the management of the Moshi Co-operative University (MoCU) and the Inter-University Council for East Africa (IUCEA) for giving me a chance to attend the Staff Mobility Programme at the University of Rwanda (UR). It was at this time; that the manuscript was written. However, the accountability remains solely to the author and not otherwise.

Author’s contributions

I Godfrey J. Kweka declare that the inception, design, data compilation, analysis and interpretation of the data as well as the writing of the manuscript were done solely by the author.

Disclosure statement

The author declares no conflict of interest.

Data availability

The author confirms that raw data and do-file used in deriving the findings of this study are available from the corresponding author (GJK) on request.

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Notes on contributors

Godfrey J. Kweka

Godfrey J. Kweka is a Lecturer at Moshi Co-operative University (MoCU) in the Department of Economics and Statistics. He holds PhD in Economics from the University of Dar es Salaam in collaboration with the African Economic Research Consortium (AERC). He holds master’s degree in economics (M.A. Economics) and Bachelor of Arts in Economics (B.A. Economics) from the University of Dar es Salaam. Since his first appointment, he has been involved in teaching, research, and supervision of both undergraduate and postgraduate students. His areas of specialization include Public Sector, Agricultural, Development and Labour Economics. Dr. Kweka has published articles on issue related to Tax, Agriculture, Growth, Co-operatives, and International Trade. Moreover, he has participated in various conferences held in Africa in the field of Macroeconomics. He has also served as a visiting lecturer at the University of Rwanda under the Inter-University Council of East Africa (IUCEA)-Staff Mobility Programme, and he is a member of AERC. Dr. Kweka can quicky interpret statistics into simple language. Dr. Kweka has successful completed two research projects funded by REPOA: (Commodity price dynamics, household’s welfare, and food security) and MoCU (Accountability of co-operatives in Tanzania). Considering the aftermath of the Covid-19, Dr. Godfrey has developed interest and passion in exploring the best practices in pandemic preparedness for sub-Saharan African Countries. Dr. Godfrey is currently the Head of Research and Publications Unit at MoCU and has served as a peer reviewer at various stage in the: Review of Development Economics, European Journal of Nutrition & Food Safety, Asian Research Journal of Agriculture, Journal of Co-0peratives and Business Studies and East Africa Journal of Social Sciences. Godfrey is among the five nominated editors of Macroeconomics textbook for advanced secondary school in Tanzania.