An empirical study of the effect of tax revenues on public debt; a panel analysis for selected countries in COMESA region from 2008 to 2022.

Abstract

In this paper, we examined the effect of tax revenue on public debt in COMESA regional bloc. COMESA countries have continuously experienced high debt levels over the years in their pursuit of Sustainable Development Goals. This raises a question as to whether the amount of tax revenue generated is not adequate to meet the development agendas without necessarily increasing public debt to unsustainable levels. The study employs the fixed effects regression model that was developed by Baltagi, (2005) to cater for the unobserved country specific characteristics, with data from 2008 to 2022. Additionally, for purposes of having valid inferences, the study adopted the fixed effects robust standard errors and the Driscoll-Kraay standard errors as robust short run estimators. The findings show a negative relationship between tax revenues and public debt in COMESA bloc, implying that an increase in tax revenue is associated with a short run decrease in public debt. The study recommends that policy makers should not only focus on increasing tax revenues but also complement the increased tax revenues with clear fiscal rules and accountability frameworks that translate into sustainable debt outcomes, such as effective expenditure control, debt management, efforts to reduce corruption and institutional reforms. Keywords; COMESA region, Public debt, Tax revenues, 2008 to 2022