Abstract:

The Sustainable Development Goal 17, among other things, targets the strengthening of domestic resource mobilization through taxes, and assisting developing countries to attain long-term debt sustainability via policies that address the external debt of heavily indebted poor countries (HIPC), such as debt relief initiatives. Generally, it is expected that HIPC will direct most of their generated revenues towards offsetting their debts, or at least in servicing such debts, particularly where debt relief or debt restructuring is not certain. However, where these countries enjoy debt relief, it should follow that their tax efforts foster their ability to increase revenues and deploy these revenues to grow their economy. This study examines the impact of debt relief on tax revenue and the implications of this impact on African countries’ economic growth. The sample covers 48 low and middle-income sub-Saharan African countries from 1980 to 2016. With the aid of the system generalised method of moments, the results show a positive relationship between debt relief and tax revenue, suggesting that the tax revenue of countries eligible for debt relief tends to increase from the decision stage up to the completion point of fulfilling the criteria for eventual receipt of debt relief grant. It is further observed that there is little evidence to support countries’ economic growth as stemming from the tax efforts induced by debt relief. The study recommends that governments continually improve tax efforts even after debt relief and to channel tax revenues towards growth promoting capital investments.