Promoting female economic inclusion for tax performance in sub-Saharan Africa

The premise of this study on the relevance of female economic inclusion on tax performance in Sub-Saharan Africa (SSA) is motivated by four main elements in the scholarly and policy literature, notably: (i) the importance of tax income in funding the post-2015 development agenda of Sustainable Development Goals (SDGs); (ii) the low participation of women in formal economic activities; (iii) the critical relevance of gender inclusion in SDGs and (iv) gaps in the taxation and gender inclusion literature. These elements of the motivation underlying the focus of the study are expanded below.

First, with respect to the relevance of tax income in funding the SDGs, it is worthwhile to note that most countries in SSA have increasingly been experiencing large fiscal deficits over the past years. This fiscal imbalance is caused by rapid expenditure expansions and low levels of revenue mobilization. Hence, a feasible alternative is required for the region to achieve sustainable development. Accordingly, to achieve the SDGS, additional finances need to be mobilized, particularly independent resources, to fund the public goods and services. In line with the 2014 OECD Development Co-operation report, ‘Tax Revenues as a Motor for Sustainable Development’, tax mobilization is crucial for sustainable development as it provides a domestic resource channel for governments to invest in both human resource and infrastructural development. However, such mobilization is contingent on the participation of the countries’ human resources in formal economic activities.

Second, the low participation of women in formal economic activities in SSA, compared to other regions of the world is well documented, not least because women in this region are mostly involved in informal economic activities such as subsistence agriculture and petty trading. Against this backdrop, there is also an evolving strand of literature on the need to get more women on board in formal economic activities in order to optimize human resources for economic and sustainable development avenues. This is essentially in the light of the documented relevance of gender inclusion in SDGS.

Third, the criticality of gender inclusion in SDGS builds on the evolving perspective that the ineluctable phenomenon of globalization must be given a human face in order for the phenomenon to contribute more toward inclusive development. It is in this light that calls have been made for globalization to be more gender inclusive, notably because of the documented evidence of discrimination against women in SSA, partly owing to the phenomenon of globalization. The perspective is better articulated by a 2018 World Bank report which establishes that the gender gap between men and women account for about a 160 trillion USD loss in GDP, with some of the negative externalities of the underlying most detrimental in poor countries in SSA which failed to achieve most Millennium Development Goals (MDGS). Hence, the focus of this article on how promoting gender inclusion can be leveraged for more tax income is premised on both the relevance of tax income in funding the post2015 global development agenda of SDGS as well as an apparent gap in the scholarly literature.

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Fourth, the gaps in the attendant literature motivating this study can be discussed in two main strands, notably: studies on tax performance and gender inclusion, respectively. On the one hand, in relation to the literature on taxation, prior studies have established that tax performance is mostly influenced by conventional and non-conventional factors. However, the traditional approach (i.e. which focuses on factors such as income per capita, openness of the economy and the various sectors pertaining to gross domestic products, that tend to determine the tax effort of a country) is not sustainable to generate tax revenues needed for development. Hence it is relevant to consider a non-conventional approach such as female economic inclusion, not least because: (i) the intuition for the linkage between gender economic participation and taxation performance is strong and (ii) there are only few contemporary studies on the underlying nexus between female economic participation and tax performance in SSA. On the other hand, with respect to the contemporary gender inclusive literature on SSA, the attendant literature has largely been concerned with, inter alia: the relevance of fostering the gender dimension in science education; nexus between financial access and gender inclusion; connections between information technologies and access to financial services and linkages between information technologies, the involvement of women in agricultural activities and corporate social responsibility.

Hence, this article aims to provide thresholds of gender economic inclusion relevant for the promotion of tax performance in the region.

This study explored a panel dataset of 48 Sub-Saharan African countries for the period 2000–2018. The data availability limits the sampled countries and periodicity. The study extracts data from various sources, notably:

The International Centre for Tax and Development (ICTD)/ United Nations University World Institute for Development Economics Research (UNU-WIDER) Government Revenue Dataset for tax performance variables (i.e. the total taxes revenue excluding social contributions, non-resource taxes and resource taxes).

The International Labour Organization (ILO) is used for female economic inclusion variables (i.e. female employment in industry, female labour force participation and female employment).

World Development Indicators of World Bank are employed for two control variables (i.e. gross domestic product per capita and trade openness).

Methodology GMM SPECIFICATION

Following recent Gmm-centric literature, the GMM empirical method is used for this present study bearing in mind the specific four factors identified by prior studies. These fundamental factors include: (i) The number of the countries considered in this study (i.e. N) exceeds the number of years in each cross-section (i.e. T). Thus, the asymmetry (i.e. N > T) that warrants the adoption of the approach is met; (ii) The adopted three indicators of tax performance remain persistent as the correlation between their respective level, and first lag values exceed 0.800, which is the criterion for establishing persistence; (iii) The panel structure unveils that cross-country variations are taken into consideration in the estimation approach. (iv) The concern of endogeneity is dealt with as the reverse causality or simultaneity issue is tackled through internal instrumentation, whereas the concern of unobserved heterogeneity is addressed utilizing time-invariant omitted indicators.

Results Presentation of results

This study establishes the following findings. (i) There is a negative net effect from the enhancement of female employment in the industry on the total tax revenue. (ii) There is a positive net effect of female employment in the industry on the non-resource taxes. It is worthwhile to emphasize the absence of net effects from the enhancing of female economic inclusion on resources tax. Generally, there are gender structural inequalities that restrict certain groups of people from owning and accessing natural resources while this discrimination could ultimately exclude females from economic activities in the sector. Hence, the established results reflect the likelihood of female economic exclusion in the natural resource industry compared to the non-resource industry.

The fact that the net effect of the resource tax revenue becomes impalpable can also be seen in the light of the male–female complementarity in production. Accordingly, an issue that is not often engaged concerning family stability and the corresponding productivity of the male is that the productivity of a male is largely anchored on the stability that he enjoys in his home. This is an indication that even within the framework of an employment terrain that is skewed in favour of men, the contribution of the female is still worthwhile because it is also understood as ensuring the productivity of the male. Hence, such male–female complementarity in production could explain the net effect of the resource tax revenue.

From the study, it is established that the unconditional effect of female inclusion is negative, whereas the marginal effect of the phenomenon is positive. These effects indicate that whereas female inclusion reduces the tax revenue, enhancing female inclusion increases the tax revenue. This may be traceable to the fact that the current female employment in the industry is not sufficient to increase tax revenue. However, additional female involvement in the formal economic sector could translate to increased tax revenue. Thus, this motivates the thresholds computations at which further enhancing female inclusion increases tax revenue. These thresholds are worthwhile for policy. In the light of these clarifications, from the study, a threshold of 15.35 ‘‘employment in industry, female (% of female employment)’’ is the critical mass at which the net effect of enhancing female employment in the industry on the total tax revenue is zero. Hence, above the established threshold of 15.35, further enhancing female employment will surge tax performance (i.e., total taxes revenue). It follows that below these thresholds, female inclusion in the formal economic sector will reduce tax performance.

Concluding implications and future research directions

This study examines the relevance of female economic inclusion for tax performance in 48 Sub-saharan African countries for the period 2000– 2018. Female economic inclusion is measured with female employment in industry, female labour force participation and female employment. Tax performance is measured with the total taxes excluding social contributions, non-resource taxes and resource taxes. The empirical evidence is based on the generalized method of moments in order to account for endogeneity concerns. The following findings are established: (i) There is a negative net effect from the enhancement of female employment in the industry on the total tax revenue. (ii) There is a positive net effect of female employment in the industry on the non-resource taxes. It is worthwhile to emphasize that the absence of net effects from the enhancing of female economic inclusion on resources tax is an indication that the resource tax revenue is mainly influenced by commodity prices, which tends to be more volatile and could undermine economic predictions.

The study further computes the critical masses at which female inclusion could influence tax performance. These thresholds are worthwhile for policy. The thresholds are: (a) A minimum of 15.35 ‘‘employment in industry, female (% of female employment)’’ is the critical mass at which the net effect of enhancing female employment in the industry on the total tax revenue is zero. (b) A maximum of 23.75 ‘‘employment in industry, female (% of female employment)’’ is the critical mass at which the net effect of enhancing female employment in the industry on the non-resource tax revenue is zero.

The complementary policies could entail governance and information and communication technology (ICT). Accordingly, ICT policies have been recently used to enhance tax performance in most countries. An example is ‘‘tax on web’’ that enables both male and female participants in the formal economic sector to pay their taxes without much waste of time and other intermediary costs. It follows that taxpayers should be accompanied with the relevant ICT mechanisms that would facilitate the payment of their taxes on time and with less effort.

Another worthwhile complementary mechanism is the enhancement of governance standards related to tax payments. In essence, enhancing institutional governance (i.e. consisting of the rule of law and corruption-control) can improve the tax performance because credible institutions limit the corrupt tax collectors on the one hand and on the other, stringent rule of law enables tax defrauders and corrupt tax collectors to be sanctioned in accordance with the rule of law. It follows that enhancing corruption-control and the rule of law are complementary measures that can be taken on board to improve the relevance of enhancing female economic participation on tax performance.