Abstract:
Electricity is an important ingredient for development; however, inadequate electricity
supply and its frequent fluctuations adversely affect the productivity and profits of small
and medium enterprises in sub-Saharan Africa (SSA). In turn, the adverse effects pose
challenges to economic growth and subsequently narrow further the low tax base in the
region. Information regarding the macroeconomic effects of electricity fluctuations on the
tax base in SSA is limited, thus calling for a detailed and refined study of this nature to
analyse the effect of electricity fluctuations on the tax base in SSA. A bias-corrected linear
dynamic estimator is employed for the analysis using a panel dataset for 41 SSA countries
from 2000 to 2022. The results show that electricity consumption is positively related to
the tax base in SSA while electricity fluctuation creates fiscal losses in terms of narrowing
the tax base. Specifically, gross capital formation and informal economic activities are
adversely affected by electricity fluctuations. This is a dramatic dampening effect that
requires policy attention. The results indicate that the African governments in SSA need to
increase investments in (including renovation of) the electricity infrastructures and
diversify sources of energy into visible and tangible levels. This is because unreliable
supply of electricity denies these countries the benefit of digital transformation, especially
internet access. Sustaining the pace of stable and reliable electricity is paramount for
economic growth and the growth of tax revenue in SSA countries. The article offers a
highlight in energy policy review to include reliability as a prime concern for elevating
economic growth and tax base in SSA countries. The findings suggest that African
countries should speed up renovating/investing in electricity infrastructures that would
enable expanded access to electricity and the Internet, among other digital transformation
opportunities. Furthermore, policymakers and communities in SSA should continue
expanding their knowledge on another source of energy (including renewable energy) in
view of ensuring sustainable and reliable access to electricity in the region to support
economic growth and subsequent expansion of the tax base.