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

Figures & data

Figure 1. Electricity consumption (Billion kWh Per Year) in SSA from 2010 to 2021.

Source: Construct from U.S. Energy Information Administration (EIA, 2010–2021).

Figure 2. Electricity distribution loss (Billion kWh Per Year) in SSA from 2010 to 2021.

Source: Construct from U.S. Energy Information Administration (EIA, 2010–2021).

Table 1. Descriptive statistics.

Variables	Max	Mean	SD	Skewness	Kurtosis
Tax _GDP ratio	60.95	11.901	8.626	1.559	6.589
GDP Per Capita	14222.549	1769.769	2089.69	2.51	9.973
ln(GDP Per Capita)	9.563	7.014	.907	.612	2.639
Manufacturing_ GDP	35.215	9.705	6.653	.997	4.832
Gross Fixed Formation_ GDP	79.401	19.806	11.016	.59	4.615
Labour Force (Annual Growth%)	90.959	66.234	11.014	.06	2.446
Import _ GDP	116.035	33.826	18.148	.854	4.869
Inflation (Annual Growth %)	43.438	8.017	10.775	2.035	6.868
Informal economy -GDP	65.308	35.076	14.761	−1.136	4.077
Agriculture_ GDP	63.831	22.181	14.424	.35	2.414
Service industry_ GDP	77.02	42.447	14.09	−1.22	5.187
Electricity consumption (kWh)	220.397	7.276	29.342	6.147	40.002
ln(Electricity consumption (kWh))	5.395	0.037	1.885	.042	3.222

Source: Based on data from, WDI, 2000–2022.

Table 2. Matrix of correlations.

Variables
Tax _GDP ratio	1.000
GDP Per Capita Growth	0.282	1.000
Manufacturing_ GDP	0.234	0.240	1.000
Gross Fixed Formation_ GDP	−0.026	0.241	0.006	1.000
Labour Force (Annual Growth%)	0.021	−0.459	−0.061	−0.055	1.000
Import _ GDP	0.288	0.253	0.239	0.445	−0.179	1.000
Inflation (Annual Growth %)	0.010	−0.025	−0.067	−0.044	0.092	−0.164	1.000
Informal economy	−0.088	−0.242	−0.040	−0.173	0.146	−0.135	0.055	1.000
Agriculture_ GDP	−0.424	−0.661	−0.249	−0.121	0.195	−0.221	0.083	0.145	1.000
Service industry_ GDP	0.268	0.233	0.246	0.103	−0.168	0.270	−0.207	−0.160	−0.147	1.000
ln(electricity consumption (kWh))	0.200	0.315	0.297	0.197	0.142	−0.038	0.173	−0.163	−0.296	0.239	1.000

Source: Based on data from, WDI, 2000–2022.

Table 3. Variance inflation factor.

	VIF	1/VIF
Tax _GDP ratio	2.572	.389
Agriculture_ GDP	1.921	.52
ln(electricity consumption (kWh))	1.64	.61
Import _ GDP	1.582	.632
Labour Force (Annual Growth%)	1.493	.67
Gross Fixed Formation_ GDP	1.434	.697
Service industry_ GDP	1.286	.778
Manufacturing_ GDP	1.274	.785
Inflation (Annual Growth %)	1.14	.877
Informal economy	1.107	.904
Mean VIF	1.545	.

Source: Based on data from, WDI, 2000–2022.

Table 4. Panel cointegration test.

	Kao	Pedroni		Westerlund
Modified Dickey–Fuller	−9.9846*	Modified Phillips–Perron	−2.0228**	Variance ratio	−3.9647*
	(0.0000)		(0.0215)		(0.0000)
Dickey-Fuller	−4.7210*	Phillips–Perron	−5.4382*
	(0.0000)		(0.0000)
Augmented Dickey-Fuller	−2.7805*	Augmented Dickey-Fuller	−5.0699*
	(0.0000)		(0.0000)
Unadjusted- Modified Dickey–Fuller	−13.8185*
	(0.0000)
Unadjusted- Dickey–Fuller	−5.8284*
	(0.0000)

* p < 0.1.

** p < 0.05.

*** p < 0.01 are the respective significant levels at 1, 5 and 10%.

Source: Based on data from, WDI, 2000–2022.

Table 5. Tax revenue and electricity consumption in forty-one countries in SSA.

Tax/GDP	B-CLD-FEM	B-CLD-REM	OLS-FEM	OLS-REM
L.Tax/GDP	0.797***	0.961***	–	–
	(0.128)	(0.008)	–	–
D. (ln GDP per capita)	2.492	2.845**	1.394	1.484
	(2.335)	(1.133)	(3.190)	(3.193)
Economic openness	0.002	−0.005***	0.021	0.024
	(0.010)	(0.002)	(0.017)	(0.016)
Gross Capital Formation* electricity consumption	0.011	−0.001	0.017	0.016
	(0.008)	(0.003)	(0.016)	(0.016)
Labour force*electricity consumption	−0.013	−0.010***	−0.002	−0.007
	(0.009)	(0.003)	(0.022)	(0.022)
D. (Inflation Annual Growth %)	−0.019**	−0.022***	−0.028**	−0.028***
	(0.009)	(0.006)	(0.010)	(0.010)
Informal* electricity consumption	0.021***	0.014***	0.015	0.015
	(0.007)	(0.003)	(0.009)	(0.009)
GDP per capita* electricity consumption	−0.106	0.018	−0.225	−0.165
	(0.097)	(0.017)	(0.235)	(0.220)
D. (Agriculture/GDP)	−0.039	−0.042**	−0.028	−0.027
	(0.024)	(0.019)	(0.022)	(0.022)
Manufacturing/GDP* Electricity	0.012	0.006**	0.035	0.038
	(0.014)	(0.003)	(0.028)	(0.027)
Service industry/GDP*electricity	0.006	−0.003**	0.026*	0.024*
	(0.006)	(0.001)	(0.015)	(0.014)
Electricity	0.486	0.574*	0.409	0.407
	(0.684)	(0.333)	(1.009)	(1.002)
FDI/ GDP	0.008	−0.002	0.041	0.042
	(0.013)	(0.007)	(0.026)	(0.027)
GDPP sq* Electricity	0.000	0.000	−0.001	−0.001
	(0.001)	(0.000)	(0.003)	(0.002)
Constant	2.098	0.507***	10.430***	10.194***
	(1.498)	(0.102)	(0.997)	(1.688)
Pesaran C-D Test			0.000***	0.000***
Hausman test (p-value)	0.05	0.000***	–	–
AR (2)	–	0.510	–	–
Hansen J-P-Value)	–	0.112	–	–
Observations	1271	1271	1271	1271

Standard errors in parentheses.

* p < 0.1.

** p < 0.05.

*** p < 0.01.

Table 6. Tax revenue and electricity consumption fluctuations in forty-one countries in SSA.

Tax/GDP	B-CLD-FEM	B-CLD-REM	One-Step Diff- GMM	OLS-FEM	OLS-REM
L. (Tax/GDP)	0.774***	0.968***	0.675***	–	–
	(0.107)	(0.007)	(0.024)	–	–
GDP growth rate (% Annual)	0.025	0.040**	0.033*	0.036	0.038
	(0.025)	(0.016)	(0.019)	(0.027)	(0.027)
Economic openness	−0.007	−0.003*	−0.002	0.007	0.011
	(0.009)	(0.001)	(0.006)	(0.016)	(0.016)
Gross capital formation*electricity fluctuations	−0.001	−0.012**	−0.011*	−0.025*	−0.021*
	(0.003)	(0.006)	(0.006)	(0.013)	(0.012)
Labour force*electricity fluctuations	0.007	0.003**	0.007	−0.014	−0.015
	(0.005)	(0.002)	(0.014)	(0.015)	(0.014)
D. (Inflation Annual Growth %)	−0.015**	−0.016***	0.004	−0.015**	−0.015**
	(0.006)	(0.006)	(0.012)	(0.007)	(0.007)
Informal* electricity fluctuations	−0.021***	−0.013***	−0.022***	−0.019**	−0.018**
	(0.005)	(0.002)	(0.004)	(0.009)	(0.008)
D. (Agriculture/GDP)	−0.042	−0.030	−0.016	−0.025	−0.025
	(0.029)	(0.022)	(0.017)	(0.026)	(0.026)
Manufacturing*electricity fluctuations	−0.014	−0.001	−0.014	0.003	−0.003
	(0.013)	(0.003)	(0.012)	(0.035)	(0.036)
Electricity fluctuations	−0.647*	−0.606***	−3.955	0.100	0.106
	(0.332)	(0.218)	(8.027)	(0.537)	(0.514)
GDPPSQ	−0.000	−0.000***	−0.000*	−0.000*	−0.000**
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)
FDI/ GDP	−0.002	−0.006	0.003	0.039*	0.043**
	(0.015)	(0.007)	(0.013)	(0.021)	(0.021)
Constant	1.610	−0.377		6.929***	6.668***
	(1.437)	(0.311)		(1.772)	(2.066)
Pesaran CD –Test			–	0.000***	0.000***
Hausman Test (p-values)	0.05	0.0000	–	–	–
ar (2) (p)	–	0.5310	0.3370	–	–
Hansen J-Test (p-values)	–	0.1117	0.0013	–	–
Observations	1230	1230	1271	1230	1230

Standard errors in parentheses.

* p < 0.1.

** p < 0.05.

*** p < 0.01.

Column three presents the estimated results using one-step diff-GMM for the nexus between tax revenue and electricity fluctuations. The Hansen test is for the bias-corrected linear dynamic random and GMM models overidentifying restrictions. Tests for the second-order serial correlation AR (2) p-values are reported at the bottom of the table.

Table

S/N	Variable	Definition
1.	Annual Growth Rate (% GDP)	Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for the depreciation of fabricated assets or for the depletion and degradation of natural resources.
2.	GDP per capita	Annual percentage growth rate of GDP per capita based on constant local currency. GDP per capita is gross domestic product divided by midyear population. GDP at purchaser’s prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for the depreciation of fabricated assets or for the depletion and degradation of natural resources.
3.	Gross Capital Formation	Annual growth rate of gross capital formation based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. Gross capital formation (formerly gross domestic investment) consists of outlays on additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and "work in progress." According to the 2008 SNA, net acquisitions of valuables are also considered capital formation.
4.	Labour Force	The labour force participation rate is the proportion of the population ages 15-64 that is economically active: all people who supply labour to produce goods and services during a specified period.
5.	Manufacturing	Annual growth rate for manufacturing value added based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. Manufacturing refers to industries belonging to ISIC divisions 10-33. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The origin of value added is determined by the International Standard Industrial Classification (ISIC), revision 4.
6.	Open Economy	Annual growth rate of imports of goods and services based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. Imports of goods and services represent the value of all goods and other market services received from the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments. Annual growth rate of exports of goods and services based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. Exports of goods and services represent the value of all goods and other market services provided to the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction, financial, information, business, personal, and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments.
7.	Service industry	Services correspond to ISIC divisions 50-99 and they include value added in wholesale and retail trade (including hotels and restaurants), transport, and government, financial, professional, and personal services such as education, health care, and real estate services. Also included are imputed bank service charges, import duties, and any statistical discrepancies noted by national compilers as well as discrepancies arising from rescaling. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The industrial origin of value added is determined by the International Standard Industrial Classification (ISIC), revision 3 or 4.
8.	Inflation	Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used.
9.	Informal economy	Dynamic general equilibrium model-based (DGE) estimates of informal output (% of official GDP)
10.	Agriculture % GDP	The annual growth rate for agricultural, forestry and fishing value added based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. Agriculture corresponds to ISIC divisions 01-03 and includes forestry, hunting, and fishing, as well as cultivation of crops and livestock production. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The origin of value added is determined by the International Standard Industrial Classification (ISIC), revision 4.
11.	Electricity usage	Electric power consumption measures the production of power plants and combined heat and power plants less transmission, distribution, and transformation losses and own use by heat and power plants.
12	FDI	Foreign direct investments are the net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign investors and is divided by GDP.

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.