Public Finance

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What Explains Provisioning Behaviour in the Banking Industry? Evidence from an Emerging Economy
(African Economic Research Consortium, 2022-06) Muriu, Peter
Existing literature shows that several factors drive loan loss provisioning among banks. However, little is known on this topic in the African banking context and specifically Kenya's banking industry. Using hand-collected annual bank-level data for the period 2002-2018, this paper investigates whether provisioning behaviour depends on banks' idiosyncratic or systematic factors. The study also investigates whether provisioning is pro or counter-cyclical through business and credit cycles and whether provisioning behaviour is heterogeneous for different bank groups. Estimation results reveal that provisions are used for capital and earnings management, but the findings are sensitive to bank size and ownership status. Further, the evidence suggests that provisioning reflects changes in asset quality and is counter-cyclical to the business cycle
Political Instability and Firm Performance in the Democratic Republic of Congo
(2022-06) Muhoza, Benjamin Kanze; Majune, Socrates Kraido
This study analyses the effect of political instability on firm performance in the DRC, one of the most unstable countries in sub-Saharan Africa. We use pooled panel data for three waves of the World Bank Enterprise Survey of the DRC (2006, 2010, and 2013) to analyse the effect of political instability on five measures of performance: employee growth, sales growth, productivity, investment, and export status. Results from the endogenous switching model reveal that political instability adversely affects firm performance in the DRC. In the presence of political instability, employee growth, sales growth, productivity, and investment growth significantly decline. Conversely, firms that do not experience political instability grow in terms of employee growth, sales growth, productivity, investment, and exporting activities. Our results are robust when we proxy political instability with losses due to theft, robbery, and vandalism. For purposes of policy, we recommend that political stability should be enhanced through political goodwill and legislation that advocates for peace. Firms can also push for this agenda through their business associations and platforms such as public private partnerships that link them to the government
Impact of Institutional Quality on Tax Revenue in Côte d’Ivoire
(African Economic Research Consortium, 2021-11-12) Beyera, Isabelle
Using Gill’s (2000) conceptual framework, the present study is an institutional analysis aimed at explaining the low level of tax revenue in Côte d’Ivoire. It is based on data collected from the DPPSE of the country’s Ministry of Economics and Finance, from the Central Bank of West African States, from the World Bank, and from various institutional reports and semi-structured interviews carried out with the staff of the two tax administration general directorates in Côte d’Ivoire (the DGI and the DGD). The study shows how crucial enhanced institutional quality is for raising tax revenue in Côte d’Ivoire, notably revenue from indirect taxes. Indeed, a low level of institutional quality, coupled with high levels of corruption, has contributed to a poor tax-collection performance, which in turn has hindered the two tax administration general directorates’ work in terms of tax auditing, tax collection, and tax-base assessment. As a result, there have been low levels of tax returns, payment of the key taxes and recovery of tax arrears. In addition, the magnitude of tax exemptions, and of the informal sector, has led to a reduction in the tax base and has created avenues for corruption within the tax administration system
Tax Reforms, Civil Conflicts and Tax Revenue Performance in Burundi
(African Economic Research Consortium, 2021-09-23) Ndoricimpa, Arcade
The aim of this study is to examine the effects of tax reforms and civil conflicts on tax performance in Burundi. The results from a regression analysis on a tax performance equation indicate that civil conflicts did not significantly affect total tax revenue, international trade taxes or income tax. One possible explanation for that finding is that, apart from the chaotic period 1993–1995, for the rest of the civil war period, conflicts affected mostly rural areas and had far less of an effect on the capital city Bujumbura, home to most industries and services. Consequently, after 1995, the civil war affected the agricultural sector to a much greater extent than the industrial and services sectors, which have the most taxpayers. However, civil conflicts have had significant negative effects on goods and services taxes. This is due to the negative effect of conflict on economic activity. The results of the effect on tax reforms suggest that tax reforms do not have a significant effect on total tax revenue or the tax categories. The reasons why tax reforms may not have had an effect on tax revenue performance include the prevalence of fiscal corruption, the negative effect of conflicts on the economy, abusive tax exemptions, and failure to focus on widening the tax base. Further results from the estimation of tax buoyancy and elasticity indicate that international trade tax is the strong point of the tax system in the short run, while tax on goods and services is the strong point in the long run. In addition, a high tax effort is estimated, which can be explained by the narrowness of the tax base comprised mainly of a few big taxpayers, coupled with a very large informal sector. However, it should be noted that while the tax system in Burundi is characterized by over exploited taxable capacities, it still relies on foreign aid and grants to finance much of its expenditure requirements. There is a need to rethink the implementation of tax reforms in Burundi to enhance their effectiveness.
Distributional Effects of Ghana’s Value Added Tax Regime
(African Economic Research Consortium, 2021-07-23) Andoh, Francis Kwaw
This paper examines two distributional aspects of Ghana’s Value Added Tax: the distribution of burden and benefits from VAT exemptions across different households, and the changes in prices of consumer goods across different consumption expenditure items. The results show that the VAT regime has evolved from being progressive to regressive. Strikingly, poor households have increased their expenditure on telecommunication, transport, housing and utilities despite the increase in prices. In terms of policy, the study concludes that the current exemptions are not well targeted considering the shifts in expenditure components over time. The government may either abolish them completely or shift the emphasis to reflect the consumption dynamics.

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