Remittances and Tax Revenue in SSA Countries: A Panel ARDL Approach

This study evaluates the impacts of remittances on tax revenue in Sub-Saharan African countries. The Kao Cointegration test assesses the presence of long-term relationship between remittances and tax revenues, and Panel ARDL model estimates the impact of remittances on tax revenues. The results of tests show that remittances have a positive impact on both direct and indirect tax revenues. Remittances could be a source of financial resources for entrepreneurs, and facilitate the employment of idle production capacities, leading to an increase in economic activity and employment. Consequently, they could increase direct taxes via income taxes on increased economic activities and employment. In addition, remittances are primarily used for maintaining and improving welfare of family at home, leading to an increase in consumer spending. Consequently, a rise in consumption could increase indirect tax revenues. The study highlights the pivotal role of remittances increasing the tax revenue in Sub-Saharan African countries, underlining the necessity for policymakers to consider remittances in their fiscal planning.