Abstract:
The study examined the differential effect of income and consumption tax on
income inequality in Sub-Saharan Africa and their thresholds effect. The study
used 26 countries from SSA and data collected from 1990 to 2017. The study
used the GMM panel estimation methods in achieving the objectives of the
study.
The results of the study revealed that the income tax is significant in reducing
income inequality in SSA but it has a threshold effect beyond which it turns to
increase income inequality. Also, consumption tax does not have any significant
effect on income inequality in sub-Saharan Africa and the threshold effect is
also not significant. The study recommends that the governments of sub Saharan Africa in conjunction with fiscal authorities like Ministry of finance of
these countries should focus on income tax if they wish to reduce income
inequality. The fiscal authorities in SSA countries should set an optimal income
tax rate of 9.2 percent which is necessary to reduce income inequality to boost
economic activities
