An Assessment of the Impact of Tax Policies on Economic Growth in Africa: A Literature Review of Previous Research

Abstract

This study aimed to review empirical research on the relationship between tax policies and economic growth, with a specific focus on developing economies. The study employed a literature review of several empirical studies. The study relied on Google Scholar, Scopus, ScienceDirect, Directory of Open Access Journals and Web of Science to identify articles for review. The study analysed the published articles to provide an overview of the current relationship between tax policies and economic growth. The articles included in this review were reviewed empirical papers with the focus on developing economies. The review indicated that most of the articles supported the significant and positive relationship between tax policies targeted at indirect taxes and economic growth. The results also demonstrated that considerable attention must be given to direct taxes because, beyond a certain marginal tax rate, economic growth is suppressed owing to decline in expenditure by households. The research, however, emphasises on income tax, excise tax and value added tax compared to other types of taxes. The three types of taxes referenced in the preceding statement constitute the major source of tax revenue in developing countries especially in Africa. The review also highlighted evidence of fragmented, yet studies have not fully articulated the contextual influences. In this regard, research has not evolved substantially, which limits the ability to develop and internalise best practices with wide acceptance and application. The research focus on the uncertainty about the performance benefits of tax policies, providing limited insights and future studies should be informed by the need to enhance our understanding of how tax policies affect economic growth and whether they play other contextual roles that impact economic growth.