Sectoral Composition and Tax Revenue Performance in Ecowas Countries

Abstract

The study investigates sectoral composition and tax revenue performance in ECOWAS countries. Specifically, the study examines taxable capacity, tax efforts and tax structure of thirteen Economic Community of West African States (ECOWAS) countries taking into account three major sectors comprising agriculture, service and industrial sectors for the period 2000 to 2015. This is meant to bridge the gap in the extant literature which mainly focused on tax revenue to gross domestic product without taking into account taxable capacity and tax efforts with respect to specific sectors of the economy. The study employed stochastic frontier, forecast error variance decomposition, vector autoregression and the generalized methods of moment accordingly in the empirical analysis. The result from the analysis shows that the hypothesis of a low taxable capacity and tax efforts in the agricultural, industrial and service sectors in ECOWAS countries should be rejected. Specifically, the result revealed that though the three sectors are yet to be maximally exploited, the taxable capacity of ECOWAS countries is reasonably high. Also, the service and industrial sectors express more favourable responses to the tax revenue performance compared to the agricultural sector. It was recommended among others that on the average the governments of ECOWAS countries should formalize and strengthens tax revenue collections in the agricultural, service and industrial sectors.