Electricity Provision and Tax Mobilization in Africa

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October 2017
Moussa Blimpo, Justice Mensah, K. Opalo, Ruifan Shi
World Bank Group, Swedish University of Agricultural Sciences, Georgetown University, GGKP Annual Conference
Blimpo_Electricity Provision and Tax Mobilization in Africa

In this paper, the authors provide evidence on how the provision of social infrastructure such as reliable electricity can be leveraged to increase taxation in developing countries, particularly Sub-Saharan Africa (SSA). First, using comprehensive data from the latest round of Afrobarometer Survey the authors estimate, via the instrumental variable approach, the effect of access and reliability of electricity on tax compliance attitudes of citizens in 36 SSA countries. Evidence from the paper shows a strong positive effect of electrification on tax morales with potentially strong externalities. Also, it is found that reliability of supply is crucial in explaining the impact of electricity access on attitudes towards taxes. Second, suggestive evidence on national identity as one channel driving this impact is provided. Access to social amenities such as electricity, induces a sense of national identity among citizens, thereby incentivizing them to contribute, through taxes, towards the effective functioning of the state. Third, using data from the most recent World Bank's Enterprise Survey and under conservative assumptions, the authors estimate that countries in the region could in total generate additional tax revenues in excess of 9.5 billion dollars (4.3% of total tax revenue) per annum solely by resolving issues pertaining to electricity shortages. Put together, it is concluded that the financial returns associated with public investments towards improving access and reliability of electricity are substantial, and could be harnessed to augment the financing gap in the sector.

Energy, Finance