Firm productivity in Sub-Saharan Africa: how relevant is quality of tax administration?

Abstract

Purpose The purpose of this paper is to find the effect of quality of tax administration on firm productivity in Sub-Saharan Africa (SSA). Also, the paper investigates whether the effect of quality of tax administration on firm productivity varies with respect to firms of different ages and sizes. Design/methodology/approach The paper uses the World Bank Enterprise Survey data for 6,718 firms across 40 countries in SSA. By employing the least square method, the estimations are robust since country and industry heterogeneity are controlled, as well as other covariates that affect firm productivity such as capital, technology, business environment, infrastructure and firm characteristics. Findings Results of the paper reveal that productivity of firms reduces with poor quality of tax administration. With positive and significant interaction term coefficient between smaller firms and quality of tax administration, the findings also reveal that smaller firms do benefit in the presence of poor quality of tax administration than larger firms. Originality/value The study contributes to policy by providing empirical evidence on the impact that quality of tax administration has on firm productivity. Empirically, the paper is also the first to assess the effect of tax administration quality on firm productivity with sole emphasis on SSA (to the best of the authors’ knowledge after review of literature). The paper suggests reforms and improvement in tax administration so as to reduce compliance burden and improve productivity.