The Nexus between Illicit Financial Flows and Tax Revenue: New Evidence from Resource-Rich African Countries

Abstract

Resource-rich economies, especially those in Africa, are plagued with the resource curse and Dutch Disease syndromes, which undermine the quest for effectively mobilizing domestic resources toward sustainable and inclusive development. Empirical evidence on the role illicit financial flow (IFF) plays in this regard is relatively scarce. Thus, this study evaluates the volume of IFF and its effect on tax revenue in seven resource-rich African countries. Panel data, sourced for the 2009-2021 period, were analysed using the fixed effect and random effect models while the Instrumental Variable Generalised Method of Moment (IV-GMM), a dynamic estimator, was used for robustness check. Findings revealed that IFF has been on the rise and has detrimental effects on the tax revenue of the sampled countries’ national governments. This is inimical to sustainable development. Thus, the governments and policymakers in these countries must develop pragmatic policy and institutional approaches toward tackling the IFF menace.

Keywords

• tax revenue
• illicit financial flows
• sustainable development
• fixed and random effect models
• africa.