Optimal tax rate and economic growth. Evidence from Nigeria and South Africa
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Date
2015
Authors
Saibu, Olufemi Muibi
Journal Title
Journal ISSN
Volume Title
Publisher
E u r o E c o n o m i c a
Abstract
The recent economic crisis had made developing countries to look inward for financial resources to
finance development. The readily alternative is the tax revenues however, the possible adverse direct and
indirect effects of tax on productivity and work efforts as well as on aggregate consumption had make some
African countries (especially Nigeria and South Africa) reluctant in implementing far reaching tax policy
reform. This paper examines optimal tax burden and real output growth Nigeria and South Africa, two of the
top four economies in Africa. The paper empirically determined what should be the optimal tax rate for
Nigeria and South Africa-the two leading economies in Africa. The paper found that nonlinearity hypothesis
in the effects of tax in the case of South Africa is rejected while a significant nonlinear relationship is found
in the case of Nigeria. The results suggest that the growth-maximizing tax rate is about 15% of per capita
GDP for South Africa and 30% for Nigeria. At that tax rate, the economic growth rate would be around 6%
and 8% instead of the actual mean growth rate of 2.84% and 4.51% for South Africa and Nigeria respectively.
The paper concluded the current tax burden in the two countries may be sub-optimal and may hurt long term
sustainable growth process in the two countries.
Description
Keywords
growth; tax structure; fiscal policy, public finance
Citation
Saibu M.O (2015) “Optimal Tax Rate and Economic Growth. Evidence from Nigeria and South Africa” Euro-Economica Volume 34 Issue 1Pp 41-50