TAX-REVENUE INSTABILITY, WITH PARTICULAR REFERENCE TO SUB-SAHARAN AFRICA

This article examines the temporal instability of tax revenues across a sample of developed and less developed countries. It is shown that instability is especially high in LDCs and is highest in open economies with low per capita income, high output variance and inflationary problems. Even allowing for these factors, revenue instability appears to be particularly high in sub-Saharan Africa. Revenue instability can be expected, via the government budget constraint to be associated with expenditure instability and/or instability in the sources of deficit finance. Cross-section evidence for LDCs confirms that countries with high tax revenue instability tend also to have high expenditure instability. Time-series evidence for six African countries however suggests that revenues and expenditures do not move together in a uniform manner and the direction of causality is generally ambiguous. There is some evidence however that foreign borrowing is used more to finance expenditure increases than to counteract revenue shortfalls.