Financial Development and Its Impact on Tax Revenue in Côte d’Ivoire

Abstract

Increasing domestic revenue mobilization remains a challenge for many governments, generally in low-income countries and in Côte d'Ivoire in particular. This work aims to assess the effects of financial development on the mobilization of tax revenues in Côte d'Ivoire during the period 1985-2020. The Granger Causality techniques were applied to data, revealing that there is a one-way relationship between financial development and tax revenue and between export and tax revenue. The results of the estimation of the two-step cointegration model of Engle-Granger (1987) show a cointegration relationship between taxes and their variables in the long term as in the short term. The improvement of financial development and the good quality of national institutions lead to better mobilization of tax revenues. However, the contributory capacity of exports to national wealth positively and significantly influences the mobilization of income in the short term, in the long term, exports become harmful but not significant. The results reflect the non-negligible role of the quality of national institutions in the relationship between the financial sphere and the real sphere.