Many African economies face structural fragility and limited fiscal capacity. Amid rising external shocks and declining aid, they must urgently boost domestic revenue—especially through taxation. However, widespread informality and narrow tax bases continue to hinder revenue growth and sustainable financing.

Focus area

This project examines the nature and dynamics of firm-level informality and its implications for tax compliance in African countries. Grounded in economic theory and informed by multidisciplinary insights, it combines macro, sectoral, and firm-level data—particularly from Ghana—to analyse how informality affects revenue, how fiscal capacity shapes economic structure, and how digital technologies and platforms influence small and medium -sized enterprises (MSMEs) formalization and compliance.

Key objectives

The project aims to identify the key factors that hinder firms’ transition from informal to formal status, as well as the government support needed to facilitate this shift and enhance tax morale. It will also examine taxation fairness between informal and formal firms, exploring how their perceptions of the social contract influence attitudes toward tax compliance. Additionally, the project investigates how tax authorities across Africa can leverage digital technologies to expand the tax base, improve revenue collection, and reduce corruption-related leakages.

External funding

United Nations University World Institute for Development Economics Research (UNU-WIDER)

Researchers in the project:

Jörgen Levin (Project Lead), Nordic Africa Institute (NAI)

Emmanuel Orkoh, Nordic Africa Institute (NAI)