Moderating Role of Institutional Quality between Company Income Tax and Economic Growth in 15 West African Countries

An Application of Mean Group (MG) and Pooled Mean Group (PMG) Model

Abstract

This study seeks to examine Moderating Role of Institutional Quality Between Company Income Tax (CIT), and Economic Growth in 15 West African Countries. In the context of selected West African countries, the links between corporate income tax, institutional quality, and economic growth are of particular interest. To achieve this study, this research employed the Dynamic Panel ARDL model: (An Application of Mean Group (MG) and Pooled Mean Group (PMG) Model) and a robust dataset comprising 345 observations from diverse West African countries. The data covers a range of key economic variables, including gross domestic product (GDP), corporate income tax (LNCIT), institutional quality (LNITQ), trade openness (LNTOP), inflation rate (LNINF), interest rate (LNINT), exchange rate (LNEXR), and tax effort ratio (LNTER). By analyzing these variables and their interrelationships through rigorous statistical methods, we aim to provide valuable insights into the mechanisms influencing economic growth in the region. In the following sections, presented the
descriptive statistics and correlation matrices for the economic variables under study. Then
proceed with the Error Correction Estimation (MG and PMG) to identify the most suitable model for analyzing the relationships. Therefore, the interpretation is based on the PMG. LNCIT, LNITQ, LNTOP, LNINF, has a positive relationship with GDP while LNCITITQ and LNEXR has a negative relationship with GDP. A unit change in LNCIT, LNITQ, LNTOP, LNINF, GDP increases by 3.159 (10.530), 346.741 (744.897), 0.414 (0.340) and 0.001 (0.423) respectively. A unit change in LNCITITQ and LNEXR, GDP decreases by -29.023(56.963) and -0.405(0.545). Any movement from disequilibrium, the speed adjustment is corrected by -0.240. The findings suggest that various economic indicators influence economic growth differently in different countries. Policymakers should consider these insights while formulating tax policies, improving institutional quality, and attracting foreign investment to promote sustainable economic growth in the selected West African Countries.