Taxes, Inclusive Growth, and Spatial Effect

ABSTRACT This study examines the effects of aggregated (total) and disaggregated (direct, indirect, trade, corporate, and property) taxes on inclusive growth (IG). Motivated by the spatial spillover theory, we decomposed the effects of taxes on IG into direct, indirect (spatial spillover), and total effects to ascertain whether spatial spillover effects matter in the taxes and IG nexus. Applying the spatial Durbin model to the sample of 39 countries in sub‐Saharan Africa (SSA), the results show that indirect, trade, and corporate taxes positively and significantly influence IG. It is observed that across these taxes, the indirect effects from neighboring countries contributed a larger share of the total effect. The property taxes are negative and significant across all decompositions, yet the neighboring spatial effect is dominant. The results confirm the non‐negligibility of spatial spillover effects. The study recommends that to maximize the positive effects of taxes on IG, countries should collaborate to develop harmonized regional tax policies that enhance efficiency, reduce tax evasion, and ensure equitable distribution of benefits across borders.