ECONOMIC GROWTH AND INCOME INEQUALITY IN SUB-SAHARAN AFRICA AND ITS REGIONS: THE ROLE OF PROGRESSIVE PERSONAL INCOME TAX

Abstract

This study investigates the influence of progressive personal income tax on economic growth and income inequality across Sub-Saharan Africa (SSA) and its constituent subregions. Using a two-step System Generalised Method of Moments estimator incorporating forward orthogonal deviations, which improves upon conventional SGMM techniques that do not accommodate such transformations, the analysis covers a panel of 40 SSA countries over the period 1990 to 2022 within a dynamic, time-invariant framework. The empirical evidence indicates that Progressive Personal Income Tax (PIT) does not exert a statistically significant effect on economic growth at the aggregate SSA level, while it is associated with an increase in income inequality. Notwithstanding this overall pattern, substantial heterogeneity emerges across subregions. PIT demonstrates a positive and statistically significant relationship with economic growth in Southern and West Africa, whereas its effect is not statistically meaningful in Central Africa. Conversely, in East Africa, PIT is negatively and significantly associated with economic growth. With respect to income distribution, PIT is found to reduce income inequality in Southern and West Africa, while no significant effects are detected in the remaining subregions. By providing a disaggregated regional analysis, this paper extends existing empirical literature on the growth and distributional consequences of progressive taxation within SSA. In pursuit of Sustainable Development Goals 8 and 10, the findings suggest that policymakers should prioritise carefully targeted tax reforms, reinforced anti-corruption frameworks, prudent inflation control, and coherent integration of fiscal and macroeconomic policies.