By Gbêmèho Mathieu Trinnou

Summary:

The purpose of this study and research paper is to analyze the explanatory factors of tax potential and tax effort in WAEMU countries. The methodological approach was founded on the implementation of a stochastic frontier model drawing on the enhanced version formalized by Kumbhakar et al. (2014). The model was estimated following a three-step procedure, using panel data collected from all eight (8) member states of the Union. Step one consisted in identifying the explanatory factors of tax potential, step two was to estimate the tax effort reflecting the efficiency of the tax authorities, and step three focused on estimating the tax effort connected with the contribution of tax policy decisions. The findings of step one revealed that macroeconomic variables, such as real GDP per capita, secondary and tertiary sector shares, trade openness and the financial development index, positively influenced tax potential in WAEMU. Inflation control also played a beneficial role.

In contrast, the primary sector did not contribute to an increase in tax revenue. As for institutional quality variables, corruption had a negative impact on growth in tax revenue, while growth was boosted by empowering citizens and taking their views into account.

The findings of the other two steps revealed that there was still scope to increase tax revenue in WAEMU, because full tax potential had yet to be achieved in the Union's economies. The estimated tax effort across the Union averaged 78.1% over the 2003-2019 period. This figure was reached by combining the tax effort arising from tax policy decisions (87.3%) and the tax effort reflecting the efficiency of the tax authorities (89.5%). By country, the tax effort stood at 73.5% in Benin, 88.0% in Burkina Faso, 64.3% in Côte d'Ivoire, 70.1% in Guinea-Bissau, 89.6% in Mali, 83.5% in Niger, 78.4% in Senegal and 77.9% in Togo. The study used those findings to identify key economic policy implications.