Romain Houssa and Kelbesa Megersa (Revised, September 2024)
Abstract
We investigate the contribution of the Value-added tax (VAT) to tax revenue in a sample of 149 countries and examine how this performance is affected by institutional quality and economic development. Our panel data analysis shows that better institutional quality translates to higher revenue collection – even without VAT adoption. VAT adoption also improves tax revenue collection, even in a weak institutional environment such as in Sub-Saharan Africa, where earlier studies were unable to find clear positive effects.