Is climate change hampering tax revenues in Africa?

Abstract

The place of tax revenues in the economic development process, as well as its role in achieving the Sustainable Development Goals, has been the subject of discussion in the literature. The importance of these revenues and the need for countries to improve their level of tax revenues have led to numerous studies whose objective is to understand the determinants of tax revenues. Thus, this article contributes to this literature, by examining for the first time, the effects of climate change on tax revenues in Africa in 45 countries over the period 2000-2020. Through a principal component analysis, we identify a composite indicator of climate change. The results support the presence of a negative relationship, thus suggesting that a higher level of climate change leads to a lower level of tax revenues. The analysis of transmission channels shows that inflation and foreign direct investment are the channels through which climate change affects tax revenues. Based on these findings, the policy implications of this relationship between climate change and tax revenues need to be considered.

Key words: Climate change, tax revenues, inflation, foreign direct investment, Africa.

Classification JEL : Q54, H20, E31, F21, O55.

Paper type:  Empirical Research.