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The effect of illicit financial flows on

government revenues in the West African
Economic and Monetary Union countries

Abdou Thiao |

To cite this article: Abdou Thiao | (2021) The effect of illicit financial flows on
government revenues in the West African Economic and Monetary Union countries,
Cogent Social Sciences, 7:1, 1972558, DOI: 10.1080/23311886.2021.1972558

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Thiao, Cogent Social Sciences (2021), 7:
1972558
https://doi.org/10.1080/23311886.2021.1972558

POLITICS & INTERNATIONAL RELATIONS | RESEARCH ARTICLE

The effect of illicit financial flows on
government revenues in the West African
Economic and Monetary Union countries
Abdou Thiao1*
Received: 09 March 2021
Accepted: 22 August 2021
Abstract: This is a study of the effect of illicit financial flows on government
*Corresponding author: Abdou revenues in the West African Economic and Monetary Union countries. The
Thiao, Cheikh Anta Diop
University in Dakar, Senegal study uses data from 8 countries and covering the 1996–2013 period.
E-mail: Using an empirical investigation with instrumental variables, the study
[email protected]
found that illicit financial flows had a negative and significant effect on
Reviewing editor:
Robert Read, University of government revenues and that this effect was tied to per capita
Lancaster, Lancaster, UK income, corruption and governance. It further highlighted the
Additional information is significance of the per capita income in the relationship between illicit
available at the end of the
article
financial flows and government revenues. The study therefore
recommends that the governments should strengthen their tax
collection capacity to better identify and prevent certain illegal
activities associated with illicit financial flows. At the regional level, the
West African Economic and Monetary Union Commission should
consider setting up an appropriate illicit financial flows consultative
body that would bring together state and non-state actors and serve as
a platform for consultation and discussing illicit financial flows issues.
With regard to the per capita income as the main transmission channel,
governments should put in place the incentives that people need to
keep and invest a large part of their profits and savings in their
countries origin.

Subjects: Public Administration & Management; Economics; Finance

Keywords: government revenues; illicit financial flows; capital flight;

instrumental variables

ABOUT THE AUTHOR

PUBLIC INTEREST STATEMENT
Abdou Thiao is a lecturer at Department
In the study, we use sample data on 8
of Economics, Cheikh Anta Diop
West African Economic and Monetary
University (Senegal). He has his PhD in
Union countries (WAEMU) for 1996 to
Applied Economics (Cheikh Anta Diop
2013 to explore the effect of illicit financial
University). His research interest include
flows on government revenues in WAEMU.
Economic Policy, financing development,
From our results, illicit financial flows had
capital flight, tax revenue, fiscal
a negative and significant effect on
decentralization, games theories and
govern- ment revenues. Further analysis
structural transformation.
revealed that illicit financial flows are tried
to several transmis- sion channels such
are per capita income, cor- ruption and
government effectiveness. It further
highlighted the significance of the per
capita income in the relationship between
illicit financial flows and government
revenues. These funding suggest that illicit

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https://doi.org/10.1080/23311886.2021.1972558
financial flows have not a direct effect on

© 2021 The Author(s). This open access article is distributed under a Creative
Commons Attribution (CC-BY) 4.0 license.

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1. Introduction
Public resource mobilization is an important and indispensable strategy a given
government must use in its implementation of investment, poverty reduction and
public service provision policies (Culpeper & Bhusshan, 2010; Ogunleye & Fashina,
2009). Even though this issue has not received the attention it deserves, today
increasing government revenues has emerged as a necessary step for developing
countries towards reducing their reliance on foreign aid (Diarra, 2012).

An analysis of public revenue mobilization rates in developing countries taken

together or individually reveals contrasting situations. In the West African Economic
and Monetary Union area, this rate was 19.1% in 2013, which was lower than the
average for sub-Saharan Africa (27.5%) (BCEAO, 2013). This notwithstanding, between
2000 and 2014 the West African Economic and Monetary Union member states made
great efforts to meet the minimum threshold of 17% of their gross domestic product
(GDP). During that period, Senegal and Togo significantly increased their tax
collection rate to 19.3% and 19.8% respectively. The two countries were able to
achieve these rates because they widened their tax base as a result of the recent
boom in their mining industries and in their telecommunications and banking
sectors (Annex A).

Burkina Faso and Niger also increased their public revenues to 15% of their GDP in
2014, compared to around 10% in 2000. In contrast, Côte d’Ivoire, Mali and Benin
made very little progress during the same period: 14.7% against 15.2% for Côte
d’Ivoire, 12.3% against 12.5% for Mali, and 14.1% against 14.8% for Benin. Guinea
Bissau had the lowest tax collection rate in the West African Economic and Monetary
Union area, with an average rate of only 7% (BCEAO, 2013).

Despite the tax collection performance of these countries, their situation

constitutes a surprising paradox (Ndikumana, 2014). Most of them do not have enough
savings to finance their investments. This means that their economies are forced to
depend on official development aid, which has been constantly declining as a result
of recurring financial crises. However, large sums of money are illegally transferred
out of them (and the continent) every year (BCEAO, 2013; GFI, 2008).

Illicit financial flows have become a major concern for governments and
international develop- ment agencies. Narrowly defined, illicit financial flows are
undeclared funds that are illegally acquired, transferred or used as the product of
criminal activities or corruption (BCEAO, 2013; GFI, 2008). Broadly defined, they are
funds acquired and transferred by taking advantage of the loopholes in the law or
some other artificial arrangements aimed at circumventing the spirit of the law. This
paper will follow the narrow definition and define illicit financial flows as any income
that is acquired, transferred or used illegally.

Illicit financial flows are increasingly attracting attention because of their scale and
negative impact on countries’ development efforts. Empirical studies (AfDB, 2010;
BCEAO, 2013; GFI, 2013) have reported large sums of money that has illegally left
the African continent. While there is much controversy about the exact amount of
money involved in this capital flight, it most likely exceeds the official development
assistance and investment inflows. Estimates of illicit capital flight from Africa show
that, on average, it increases by 12% per year (Dickinson, 2014; GFI, 2013).

According to Global Financial Integrity (2013), illicit financial flows from developing
countries grew by 10.2% between 2002 and 2012. In 2012, Asia experienced the
highest rate of illicit financial flows (39.6%), while developing Europe and Western
countries in the western hemisphere experienced rates of 21.5% and 19.6%,
respectively (Annex C). The average rate for the Middle East and North Africa regions
was 11.2%. Although sub-Saharan Africa experienced the lowest nominal rate (7.7%), it

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had the highest average GDP ratio, 5.7% (Kar & Leblanc, 2014).

IFFs are tied to several transmission channels, most of which come from
corruption, criminal activity and trading activities. GFI (2010) estimated that 30% to
35% of those flows from African countries were linked to organized crime. That is a
very high proportion, compared to that of illicit

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financial flows linked to corruption (5%). But most striking is the fact that 60% to
65% of the total IFFs were related to trading activities.

According to the High Level Group (2015), Africa itself is to blame for illicit
financial flows, because of the weaknesses in its governance system and especially of
the inability of its regulatory institutions to prevent them. But those illicit financial
flows can also be blamed on the opacity and lack of transparency of the
international banking system, which is a facilitating factor in the easy transfer,
circulation, and concealment of financial resources. They can also be blamed on the
existence of safe havens, which makes it difficult for African countries to monitor the
illicit financial flows (European Commission for Africa, 2014).

All these problems show that illicit financial flows have many and complex effects
on countries’ economies and can affect their levels of public revenue mobilization
through various mechanisms involving the violation of the law and the undermining
of good governance both in the public and the private sectors. Illicit financial flows
hinder economic growth, leading to a reduction in investment and, hence, in public
revenues (Ndikumana, 2014; UNDP, 2011).

The link between illicit financial flows and public revenue mobilization, as has
been shown in the previous contextual analysis, is crucial to the economies of
African countries. This study analyzes how illicit financial flows affect government
revenues in the West African Economic and Monetary Union countries. Specifically, it
measures the effect and the contribution of the transmission channels through
which illicit financial flows affect government revenues. The study was moti- vated
by the observation that illicit financial flows reduce the resources that could have
been invested to create wealth in the countries affected. This suggests that illicit
financial flows have a potentially negative effect on public revenues.

An analysis of such an illicit financial flows effect is particularly relevant to the

situation of the West African Economic and Monetary Union countries for several
reasons. First, one of the characteristics of their economies is the existence of a
fixed exchange rate between the CFA franc and the euro. This exchange-rate fixity
means that the countries concerned are unable to adjust the exchange rate, which
has led to a strong sensitivity of their economic growth to shocks (Savvides, 1996),
a state of affairs which in turn encourages illicit capital outflows. Second, the
opening of the capital account increases the countries’ vulnerability to fluctuations
in capital flows, particularly by providing the legal channels for an illicit outflow of
capital (Ndikumana, 2014). Third, the informal networks, which are extremely active
in cross-border trade, have fostered the growth of cross-border criminal trafficking
across the porous borders of the countries. The local border populations, who rely on
these smuggling networks, do not distinguish between illicit and lawful goods
(OECD/CSAO, 2014; Reitano & Shaw, 2014).

The state of affairs described in the preceding paragraph is conducive to illicit

financial flows; these have indeed become a chronic and growing phenomenon in
the West African Economic and Monetary Union area. The most recent estimates
show that over the 2003–2014 period, illicit financial flows reached the staggering
amount of about US$900 billion (GFI, 2013). The GFI (2013) estimates show how high
the levels of these illicit financial flows are compared to those from the rest of sub-
Saharan Africa. In this regard, two WAEMU countries rank in the top 10 sub-Saharan
African countries with the highest amounts of illicit financial flows: ranking 5 th is Côte
d’Ivoire (with US$23 billion, corresponding to 6% of its GDP) and ranking 8th is Togo
(with US$18 billion, corresponding to 4.7% of its GDP).

There is unanimity in the literature on econometric research in recognizing the

adverse effects of illicit financial flows on an economy (Fofack & n.d.ikumana, 2015;

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Macharia, 2014). Against this background, the contribution of this study is twofold.

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First, to the best of our knowledge, there is very little work that focuses
exclusively on govern- ment revenues, especially in Sub-Saharan African countries.
However, those related to the impact of illicit capital flight on investment and
growth have been conducted on a sample of franc zone countries (Ndiaye, 2011;
Ndikumana, 2014). This research attempts to fill this gap in the literature.

Second, we seek to determine the transmission channels of the effect of illicit

financial flows on government revenues. The objective is first to analyze the direct
and indirect effects of illicit financial flows and then to measure the relative
contribution of these different transmission channels to the effect of illicit financial
flows on the public tax rate.

The study used a method developed by Mo (2001) and adopted by Attila et al.
(2009) to empirically analyze the contribution of the various channels through which
illicit financial flows affect public revenues. The results showed that illicit financial
flows negatively affect public revenues through per capita income, corruption and
governance.

The remainder of the paper is structured as follows: Section 2 is a review of the

literature on the relationship between illicit financial flows and government
revenues. Section 3 provides informa- tion on the trends in illicit financial flows.
Section 4 outlines the methodology used in the study, and Section 5 is the
conclusion.

2. Literature review
Although public revenue mobilization has many determinants, recent literature is not
unanimous on their nature. Nevertheless, empirical consensus exists on the significant
effect of the level of develop- ment and trade openness on the negative relationship
between IFFs and public resource mobilization.

2.1. Determinants of public revenue mobilization

Early research on the determinants of public revenue mobilization dates back to
Shin (1969), Lotz and Morss (1970), and Bahl (1971). Since this early research, several
studies have been conducted in developed and developing countries to explain the
structural factors in public resource mobiliza- tion (Ángeles Castro & Ramírez
Camarillo, 2014; Karagöz, 2013; Sharma & Singh, 2015). For these authors, the
development level, often measured by the per capita GDP, is considered one of the
primary determinants of the tax burden.

Ghura (1998) analyzed determinants representing macroeconomic and structural

policies and the level of corruption based on a panel data of 39 countries in SSA
during 1985–1996. Using instrumental variables generalized least squares (IV-GLS)
he found that an increase of the level of corruption lowers the tax revenue. Mahdavi
(2008) used a modified model with a number of explanatory variables based on 43
developing countries over the time period 1973–2002, using the GMM method with
cross-section fixed effects. He finds that total tax revenues is positively related to
the degree of international trade and the level of development approximated by per
capita income. However, an increase in foreign aid, the degree of monetization and
the rate of inflation lead to lower tax revenue.

Ajaz and Ahmad (2010) conducted a study on the effect of institutional and
structural variables on tax revenues. Using the Generalized Method of Moments
(GMM) estimation technique for the 1990–2005 period for 25 developing countries,
they showed that structural variables such as the per capita income, trade
openness, the share of the industry in the economy and the inflation rate play an
important role in tax mobilization.

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Thornton (2014), who added another variable, namely the revenue from natural
resources, also found that those structural variables are generally associated with
higher tax revenue rates, while corruption and the revenue from natural resources
has the opposite effect.

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At the same time, other studies have shown that the degree of openness of an
economy has a positive effect on fiscal performance thanks to tax collection facilities
(Baunsgaard & Keen, 2010; Bird et al., 2008). Trade openness accounts for the fiscal
disparities that exist between developing countries. However, some studies have
shown that it leads to losses in public revenues (Cagé & Gadenne, 2016;
Sokolovskan, 2015).

In addition to those factors, empirical studies have shown that the sectoral
composition of the economy also accounts for the trends in tax collection (Anware,
2014; Botlhole, 2011; Mahdavi, 2008). Gupta (2007) contributes to the empirical
literature on the determinants of tax revenues using data from 105 developing
countries over 25 years with different estimation techniques, including both fixed
and random effects, panel-corrected standard error estimation using Prais- Winsten
regression as well as difference GMM and system-GMM estimation. He finds that
countries that depend on agriculture have difficulty collecting taxes because of the
predominance of informal activities in this sector. In contrast, since industrial
activities and services are better organized, they are easier to tax (Crivelli & Gupta,
2014; Thomas & Treviño, 2013).

In addition to economic determinants, performance in public revenue mobilization

may be affected by the institutional context. Various studies have shown that tax
collection is one of the most important areas where corruption is most likely to
appear (Feger, 2014; Hossain, 2014; Syadullah & Wibowo, 2015). Ajaz and Ahmad
(2010) and Imam and Jacobs (2014) confirms these findings. The GMM and the
system-GMM regression results show that institutional variables have significant effect
on tax revenues. The study concludes that governance and corruption are two main
determinant of tax revenue. Corruption has adverse effect on tax collection, while
good governance contributes to better performance in tax collection. The study
concludes that corruption has negative and significant effect. Governance has positive
and significant effect on tax revenues, this shows that good govern- ance brings good
tax system; governance has positive relation with tax system.

2.2. Links between illicit financial flows and resource mobilization

The ever-increasing interest in illicit financial flows has led to production of a large body
of literature on the subject (Dyreng et al., 2015; Zucman, 2014). The same interest is
also attributable to the many significant effects which illicit financial flows have on the
levels of development of different countries (Epaphra, 2015; Herkenrath, 2014; Ortega
et al., 2018). Most striking is the effect they have on public bodies. According to Kar and
Cartwright-Smith (2010), those capital outflows, which could have been spent on public
service expenditures, undermine economic development in poor countries. Not only
do illicit financial flows have a direct impact on public service delivery, they also
threaten the stability and credibility of a country’s financial system and its
institutions (Fontana, 2010).

With respect to the relationship between illicit financial flows and public revenues,
existing literature is unanimous about the fact that the former constitute an
obstacle to resource mobiliza- tion and wealth creation (Ayadi, 2008; Ritter, 2015).
Moreover, some studies suggest that they erode the tax base (Ajayi, 1997). In fact,
empirical studies conducted in several African countries have indicated that the
public debt burden would disappear if illicit financial flows were stopped (Fofack &
n.d.ikumana, 2015; Forgha, 2008).

Ndikumana (2009) found that illicit capital flight affected a country’s budget balance
by reducing its tax base through a contraction of its economic activity. The erosion of
the tax base occurs because funds sent abroad cannot be taxed since they are out of
the reach of tax authorities in the countries of origin. This result corroborates that
obtained by Iweala et al. (2003) in a study conducted in Nigeria.

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Kar and Leblanc (2014), using a double-squares method, found that illicit financial
flows nega- tively affected domestic revenues in the Philippines over the 1960–2011
period. Incoming IFFs negatively and significantly reduced the country’s tax
collection rate and strengthened its under- ground economy. The country incurred
a significant wealth loss representing about 37% of its

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social budget in 2011. By testing the robustness of their results using a Vector Error
Correction Model, the authors showed that in the long run a higher performance in
tax collection required a reduction in illicit financial flows. This result corroborates
that obtained by Macharia (2014) in a study based on data from Kenya.

All these studies have shown that the effects of illicit financial flows were the
same, whether the study used a descriptive approach or an econometric one. However,
only a few of them have focused on the impact of illicit financial flows on public
revenues through transmission channels to which illicit financial flows seem to be
tied (Ndikumana & Boyce, 2012). This study attempts to do that.
3. Illicit financial flows in the West African Economic and Monetary Union countries
Given the lack of consensus on the definition of illicit financial flows, measuring them
is not easy. Economists frequently use three models to measure the size of illicit
financial flows: the hot- money model (Cuddington, 1986); the World Bank residual
model (World Bank, 1985); and trade misinvoicing (GFI, 2008).

The hot-money model uses net errors and omissions in the balance of payments to
estimate illicit financial flows. A constantly high and negative net value of errors and
omissions is seen as a sign of illicit capital flows. The World Bank model is used to
determine a country’s source of funds for their registered use. Any inflow of funds that
exceeds its stated use is considered non-allocated capital and, hence, illicit financial
flows (Boyce & n.d.ikumana, 2001). Unlike the previous two models, fraudulent
misinvoicing involves comparing exports and imports between partner coun- tries.
Differences in trading data, after adjusting for transport and insurance costs, which
suggest over- or under-invoicing, are evidence of some illicit financial flows (BCEAO,
2013; Kar & Cartwright-Smith, 2008).

An analysis of illicit financial flows within the West African Economic and Monetary
Union area highlights the significance of the phenomenon in the decade 2004–2013
(see Figure 1). Illicit financial flows followed an upward trend with uneven
fluctuations: for example, they were on an upward trend from 2004 to 2008,
decreasing between 2008 and 2009, most likely due to the 2008 financial crisis, and
increasing again from 2010 (Figure 1).

Figure 2 compares illicit financial flows with inflows of ODA in the West African
Economic and Monetary Union area from 2004 to 2013, in current US dollars. During
this period, illicit financial flows exceeded the ODA received annually and increased
over time: the average was US$80 billion, against only US$50 billion for ODA. This
observation corroborates that made by the High-Level Group (2015), namely that
African countries on average lose between US$50 billion and 148 billion per year
(BCEAO, 2013).

Figure 1. Trends in IFFs in 0

100
the WAEMU area from 2004
to 2013 (in US$ millions) 90
Source: Author’s based on 80
data from the .GFI (2013)
70
60
50
40
30
20
10

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2004 2005 2006

2007 2008
2009 2010
2011 2012
2013

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Figure 2. IFFs vs. ODA in the 8000

WAEMU area from 2004 to 7000
2013 Note: In blue, APD: ODA; in 6000
orange, FFI: IFF Average for 5000
4000
2004–2013 Source: Author’s
3000
compilation based on data 2000 APD
from the .GFI (2013) and the 1000 FFI
World Bank (2014a) 0

An analysis of the average share of illicit financial flows in GDP during the same period
reveale three groups of countries: in the first group, composed of just one country,
Togo, this average share was 137%. In the second group, it was between 10% and
20%: Côte d’Ivoire (20%), Guinea Bissau (15%), Senegal (13%), Burkina Faso (10%) and
Mali (10%). For the third group it was between 4% and 6%: Niger (6%) and Benin (4%)
(see Figure 3).

The fact that the average share was highest for Côte d’Ivoire and Togo confirms
the conclusion reached by GFI (2013) that these two countries were among the 10
African countries with the highest amounts of illicit financial flows. In the case of
Togo, the high proportion is attributable to the role it plays as one of the leading
countries in West Africa in “warehouse trade”. Indeed, most of the goods that go
through Togo in transit to Burkina Faso are diverted to Nigeria through contraband
channels (GFI, 2013). During the period under study Côte d’Ivoire was going through
a socio-political crisis. In addition, the country is rich in natural resources, for
example, cocoa, which according to GFI, 2013) accounts for 49.7% of its illicit
financial flows, according to GFI (2013).

Figure 4 presents a scatter plot of public revenues (as a percentage of GDP) and
illicit financial flows. It shows a negative relationship between these two variables:
an increase in the illicit financial flows is associated with a decrease in public
revenue mobilization. It follows from this that countries experiencing huge amounts
of illicit financial flows achieve a low rate of public revenue mobilization.

Figure 3. IFFs as a percentage

160%
of GDP (averages for the 2004–
2013 decade) Source: Author’s 140%
compilation based on data 120%
from the .GFI (2013) 100%
80%
60%
40%
20%
0%

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Figure 4. Relationship

2
between public revenues and
IFFs Note: TP is the ratio of
government revenues to GDP;

2
FFI: IFFs Source: Author’s
compilation.

1
1
5

0 5 10 15 20 25
FFI
TPFitted values

All in all, descriptive statistics attest to high rates of illicit financial flows in the
WAEMU countries. Therefore, the following questions arise: Can these rates account
for the poor perfor- mance in public revenue mobilization in these countries? Which
transmission channel contributes most to the effect of those illicit financial flows on
this poor performance?

Empirical analysis of the effect of illicit financial flows on government revenues

Section 2 reviewed the theoretical and empirical literature aimed at providing

insights into the effect of illicit financial flows on government revenues in the West
African Economic and Monetary Union area. This section aims to examine this
effect empirically, which means establishing a relationship between the two
variables. This relationship is expected because taxation plays a key role in the
growth of an economy, since it is the main mode of financing development (Brun et
al., 2005; Di John, 2007; Fakile et al., 2014; OECD, 2010).

Since public revenues are a source of development funding (Aghion et al., 2016;
Dennis-Escoffier & Fortin, 2008), any factor that can stimulate economic growth is
pro these revenues (and vice versa). That is why research on the impact of illicit
financial flows needs to closely examine the relationship between such factors and
taxation. More specifically, it is important to establish whether illicit financial flows
do indeed have a negative impact on tax collection in the West African Economic
and Monetary Union countries.

This study first specifies the model to be used then describes the nature and
source of variables, the estimation techniques, and the results of the estimations
and how to interpret them.

3.1. Modelling the effect of illicit financial flows on government revenues

The theoretical framework underlying our empirical analysis is known as budget
response model- ing. The basic model is due to Heller (1975) and has been refined by
different authors (Ghura, 1998; Leuthold, 1991; Sani, 2009). Fiscal response models
examine the response of the aid-receiving government in terms of the trade-off
between various sources of revenue and public expenditure. These models view
governments as rational agents who maximize the value of some ultimate goal,
such as the rate of economic growth. Governments do this by directing certain
policy variables to their desired level value. In practice, the modeling is done in the
form of a quadratic loss function that achieves maximum utility when the policy

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targets are met. This utility function is then optimized within the budget constraint
that expenditures cannot exceed revenues.

While the question that these models attempt to address is interesting, the way in
which this is typically done has been criticized. The most important criticism is the
need to propose credible

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target variables for intermediate policy variables, such as government expenditures

and revenues. Despite the lack of consensus on the theory, Leuthold (1991) and Sani
(2009) have adopted Heller’s model. All these models analyze the utility function of
the public sector:

U ¼ UðY — T; G; D; F þ LÞ (1)

where Y-T (GDP exclusive of taxes) represents the private sector’s disposable income; G
the total government expenditure; D the net domestic borrowing; and F + L the net
foreign financial assistance to the country (F = grants; L = borrowing).

The public sector budget constraint is expressed in the following equation:

TþFþLþD¼G (2)

Following Leuthold’s (1991) model, the taxation rate (T/Y) is a function of the normal
taxation rate
(T/Y)* of tax base B; the economic policy (PE); and the level of corruption (C):

T=Y ¼ f ½ðT=YÞ𝜔; B; PE; C� (3)

In this study, corruption and illicit financial flows are linked and can produce the
same effects on public revenue mobilization. In this case, Equation 3 will be
rewritten as follows:

T=Y ¼ f ½ð1=YÞ; ðF þ LÞ=Y; B; PE; FFI� (4)

The desired public revenue mobilization rate is determined by maximizing Equation

1 under the constraint of Equation 2. It is assumed that the utility function takes a
quadratic form (Heller, 1975).

The literature on the determinants of public revenue mobilization offers a whole

series of testable hypotheses. This study seeks to highlight the impact of illicit
financial flows on public revenue mobilization. It assumes that this impact is
negative. Indeed, studies (such as Attila et al., 2009; Ghura, 1998) have reported a
negative impact of corruption on tax revenues. Starting from the assumption that
corruption is likely to be a conducive environment for illicit financial flows, it is only
logical to hypothesize that they in turn will have a negative effect on public
revenues. This hypothesis will be tested on a group of West African Economic and
Monetary Union countries. However, changes will be necessary in order to include the
variables of interest that will enable the study to answer its research questions.

Following this theoretical framework, this study will use an approach developed by
Mo (2001) and borrowed by Attila et al. (2009). It is a three-step approach: first, it
analyzes the direct impact of illicit financial flows on public revenues. At this step,
control variables with a temporal dimension are introduced. At the second step the
study estimates the effect of illicit financial flows on each of the control variables
representing the transmission channels. The third step incorporates this latter model
into the first specification.

To estimate the effect of the illicit financial flows on public revenues, the following
specification will be used:

TPi;t ¼ c þ αFFIi;t þ θjXi;t þ μi þ νt þ εi;t (5)

where TP represents the ratio of government revenues to GDP; FFI represents the value
of the illicit financial flows; X is a vector of the variables that are likely to affect
public revenues; µi designates the specific individual effect, which can be fixed or
random; νt represents the specific temporal effect; ε represents the error term; i is
the name of the country; and t is the period under study.

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The specification in Equation 5 represents only the direct effects of illicit financial
flows on public revenues. It is suggested (Benassi & Dorigatti, 2015; Ndikumana,
2014), in line with the existing

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literature, that illicit financial flows are a ubiquitous phenomenon that negatively
affects the functioning of the economy in several ways. The focus in this case is the
transmission channels through which illicit financial flows can affect public revenues,
channels that are represented by the other explanatory variables.

The aim is to measure the relative effect of the different transmission channels on
the level of public revenues. This will be done by isolating the illicit financial flows
effect that is transmitted through the other explanatory variables. Two steps will be
followed: first, a correlation will be tested between illicit financial flows and each one
of the explanatory variables representing the transmission channels:

Xi;t ¼ β0 þ βjFFIi;t þ ηi;t (6)

where Xi;t represents the explanatory variables considered to be the transmission

channels and
FFIi;t the variable “illicit financial flows”.

The second step incorporates Equation 6 into the previously estimated model
(Equation 5). This means that as many residues are incorporated as the variables
that are likely to represent the transmission channels. The model is expressed as
follows:

TPi;t ¼ ψ0 þ ðα1 þ α1þiβjÞFFIit þ ψ2ηit þ υi;t (7)

where i = 1, 2, 3, . . . .n and j = 1, 2, 3.........m; α1 FFI is the direct effect of the illicit financial
flows on
public revenues; (α1+ iβj) FFI is their indirect effect; and ηit the residues of
Equation 6.

3.2. Description and sources of variables

To study the effect of illicit financial flows on public revenues in the West African
Economic and Monetary Union countries, it is very useful not only to describe the
different variables of the model, but also to provide their sources (Annex B). The data
used in the empirical modelling come mainly from the databases of the World Bank
(2014a, 2014b), the BCEAO (2014) and GFI (2013).

3.2.1. Choice of the dependent variable: government revenues

The two most commonly used indicators in the literature (Ajaz & Ahmad, 2010;
Torrance & Morrissey, 2013) to measure a country’s level of government revenue
mobilization are the tax burden ratio and the government revenue mobilization
ratio. Since tax revenues do not cover all government revenues, it is difficult to
make comparisons between countries that are able to mobilize huge amounts of
non-tax revenues; that is the case of countries that are rich in natural resources.
This limitation is overcome by using the government revenue mobilization ratio. This
ratio is calculated as the sum of the total government revenues as a percentage of
the country’s GDP. It is preferable to the tax burden ratio because it has the
advantage of being less sensitive to the substitution effect between the major
categories of public resources (Diarra, 2012). For this reason, it is the ratio that was
used in this study.

3.2.2. Analysis of the control variables

The government revenue mobilization rate is a function of a set of variables. Since
the pioneer work of Shin (1969), Lotz and Morss (1970), and Bahl (1971), various
studies have identified the structural factors in government resource mobilization
(Basirat et al., 2014; Velaj & Prendi, 2014). These empirical studies have explored
factors that are likely to affect government revenues in both developing and developed
countries. However, it is difficult to encounter all the variables at the same time in
the same study (Attila et al., 2009; Diarra, 2012).

Ajaz and Ahmad (2010) analyzed the effect of institutional (i.e., related to

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corruption and governance) and structural variables on tax revenues for 25

developing countries between 1990 and 2005. They found that corruption has a
negative effect on tax revenues while good govern- ance improves the tax collection
rate.

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Velaj and Prendi (2014) investigated the relationship between tax revenue
collection and other variables, including the per capita GDP, the inflation rate, and
imports of goods and services from 2001 to 2013 in the case of Albania. They found
a positive relationship between these three variables and tax revenue collection.

Ángeles Castro and Ramírez Camarillo (2014) developed an empirical model for 34
Organisation for Economic Co-operation and Development (OECD) countries for the
2001–2011 period. They found that the per capita GDP, the share of industry in GDP,
and civil liberties had a positive impact on tax revenues, while the share of the
agriculture sector in GDP had a negative impact on tax collection.

This study mainly followed the framework used by Ajaz and Ahmad ( 2010), but it also
considered the traditional determinants of tax collection. The main difference
between this study and that of Ajaz and Ahmad (2010) is that it analyzed the effect
of illicit financial flows on government revenues in their totality.

Level of development. The effect of a country’s level of development on its revenue

mobilization capacity has been demonstrated both theoretically and empirically
(Tanzi, 1992). This indicator is most often represented by several variables such as
the country’s real per capita income and its degree of monetization. Several studies
have found a positive and significant effect of the level of development on
government revenues, while only a few have found a negative effect of it (Dioda,
2012; Torrance & Morrissey, 2013). The positive relationship between the per capita
GDP and government revenues has been further expanded by referring to Wagner’s
law, which states that the share of public expenditure in GDP increases with the
standard of living. In this study, the level of development was represented by the
real per capita income.

The share of agriculture in GDP. The share of the agriculture sector and that of the
industry sector in GDP are most often considered the two indicators of an economy’s
structure. Tanzi (1992) argues that a country’s economic structure is one of the
factors likely to influence its tax collection rate. The author shows that in the
developing countries the agriculture sector has a significant impact on tax revenues
from both demand and supply. The higher the share of the agriculture sector in the
GDP, the less well those countries do in raising taxes. This negative relationship is
justified by the fact that the agriculture sector is difficult to tax, especially if it is
dominated by a large number of subsistence farmers. Torrance and Morrissey
(2013) and Imam and Jacobs (2014) drew the same conclusion.

The inflation rate. The inflation rate is used to characterize macroeconomic

instability. There is often a mismatch between the tax date and the tax collection
date. In such a situation, the real value of the tax revenues collected is influenced by
the inflation rate (Tanzi, 1992). When this is too high, it discourages the mobilization
of public resources by reducing the value of the tax revenues (Hakim & Bujang,
2011).

Trade openness. The effect of trade openness on public revenue mobilization,

particularly of tax revenues, has been viewed differently by economists. For some, a
country’s economic openness has a positive influence on this mobilization (Cagé &
Gadenne, 2016; Jafri et al., 2015). For others, it could have a negative effect on the
level of public revenues, particularly through the reduction in tariffs, which trade
openness implies (Bevan, 1999). So, its effect on government revenue mobiliza- tion is
more or less uncertain; an econometric analysis is thus needed to clarify the
relationship involved. Trade openness is measured by the sum of imports and that of
exports in relation to GDP.

Institutional variables. The choice of these variables as explanatory variables is

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relevant insofar as they allow us to have an idea of the effect of the institutional
quality on government revenue mobilization and of a possible policy to fight illicit
financial flows. Recently, theoretical and empirical studies have both highlighted the
effect of institutional factors on government revenue

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mobilization (Feger, 2014; Hossain, 2014; Syadullah & Wibowo, 2015). The
institutional quality measures come from the data set compiled by Kaufmann et al.
(2010). This study uses corruption and governance indicators, namely the control of
corruption index and the government effective- ness index.

The variable of interest: Illicit financial flows. In the literature, the phrases illicit financial
flows and capital flight are often used interchangeably (Kar & Cartwright-Smith,
2008; Ndikumana & Boyce, 2012). However, by definition, and in reality, the two are
different. There are two forms of capital flight: a legal form and an illegal one. The
legal form corresponds to capital that goes out of the country but is registered in the
accounting books of the entity performing the outgoing transfer. This form of capital
flight is resorted to by savers/investors looking for higher returns or more stable
environments. As for the illegal form of capital flight, it is not registered anywhere and
most often escapes the tax system.

In the case of illicit financial flows, the goal of the owners of these funds is to hide
them and avoid legal action (High Level Group, 2015; Ndikumana, 2014).1 The owners
are sometimes willing to accept low or even negative returns as long as they manage
to hide the illegal origin of the funds. So, it is only fitting to characterize these
hidden resources as illicit since they are unregis- tered capital flows from criminal
activities, corrupt practices and trading activities.

3.3. Results of the econometric estimations

This study is about the West African Economic and Monetary Union countries for
which data are available and covers the 1996–2013 period. There is thus a double
dimension to the size of the sample, which allows the study to group the data into
panels. There are many advantages to panel-data models. For one thing, they allow
the taking into account of individual and temporal dimensions, unlike time series
and cross-sections, and, in addition, they can handle a very large number of varied
data (Sevestre, 2002).

The descriptive statistics of data used are presented in annex C. The data show that
the average public tax rate were about 15.4% of GDP. This low rate confirms the
difficulties in meeting the convergence criterion on fiscal mobilization (20% of GDP).
There is also a very high average inflation rate of 3.27%, exceeding even the
standard set by the Union (3%). The FFI indicator shows that illicit capital flight is
relatively high in the WAEMU zone. The average share of these flows in GDP is 5.62
percent. These figures confirm that there is a significant outflow of illicit financial
flows in these countries.

Annex D depicts the result the result of the correlation matrix. The result indicates
a positive correlation between the public tax rate, average per capita income, trade
openness, corruption and governance. On the other hand, the correlation relationship
is negative between the public tax rate, the share of value added and illicit financial
flows. The correlation coefficient between illicit financial flows and public tax rate is
negative (- 0.1961). This suggests that the public tax rate and the illicit financial
flows in this sample are not moving in the same direction or negatively correlated.

3.3.1. Illicit financial flows and the government revenue mobilization rate
The model used in this study was first estimated using the quasi-generalized least
squares (QGLS) method. According to Sevestre (2002), this method optimally
combines intra- and inter-individual variations. It also solves the problems of
heteroscedasticity and autocorrelation between the explanatory variables at the
individual level and between countries. It rests on the assumption that there is no
correlation between the explanatory variables and the country-specific effects.
However, in the face of measurement errors and a low temporal variability on the
part of the variable of interest, the use of the fixed-effects method is not

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appropriate.

The results of the estimations of Equation 5 using the QGLS method are reported in
Table 1. Illicit financial flows have a negative and significant effect on the
government revenues of the countries

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Table 1. Results of the estimation of the QGLS model

TP (i.e. ratio of TP TP
government revenues
to GDP)
FFI −0.0834* −0.0777* −0.112***
(−2.25) (−2.43) (−4.94)
PIBhbt 0.00745*** 0.0120***
(6.03) (5.04)
VAGR −0.00969 −0.0372
(−0.28) (−1.43)
INF 0.0371 −0.00201
(0.57) (−0.09)
ouv 0.106***
(8.32)
corr −7.735***
(−4.16)
Gouv 1.222*
(2.11)
Burkina Faso 2.918***
(4.28)
Côte d’Ivoire −6.320***
(−6.09)
Mali 3.365***
(5.76)
Niger 5.152***
(4.99)
Senegal 1.652
(1.36)
Togo −0.00356
(−0.00)
Constant 15.84*** 11.95*** −0.785
(46.87) (7.68) (−0.41)
No. of obs. 126 126 119
(.) t-statistics; (***), (**), (*): the coefficients are significant at the levels of 1%, 5%, and 10% respectively.
Source: Author’s compilation

in the sample (Table 1). This means that the massive outflow of capital from those
countries has led to a significant reduction in their public revenue mobilization rate.
These results confirm those obtained by several previous empirical studies (Ayadi,
2008; Ndikumana, 2009; Pastor, 1990).

The robustness of these results is validated by the fact that by controlling, through
several variables, for the effect of financial flows, the relationship remains negative
and significant. Illicit financial flows have a negative effect on public revenue
mobilization in the West African Economic and Monetary Union countries. They
hinder this mobilization and they are likely to cause honest taxpayers to engage in
tax avoidance practices (Diarra, 2012).

With respect to control variables, the results show that corruption has a negative
and significant effect on the government revenue mobilization rate. This result
corroborates those obtained by

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various other studies (Attila et al., 2009; Diarra, 2012). It means that the high level of
corruption in the West African Economic and Monetary Union countries has
contributed to significantly reducing their public revenues. The same result calls into
question the old but optimistic theory that corruption “fuels the economic wheel”
and renders the economies more efficient. In contrast to corruption, government
effectiveness was found to have a positive and significant effect on government
revenues. This result suggests that effective institutions contribute to improving public
revenue collection (Ajaz & Ahmad, 2010).

The level of development was found to have a positive and significant effect on
government revenues. This result is consistent with the theoretical literature which
argues that government revenues increase with the per capita income (Tanzi,
1992).

Trade openness was found to have a positive and significant effect on the public
revenues of the West African Economic and Monetary Union countries. This result
confirms those obtained by the proponents of a positive effect of trade openness on
government revenues (Dioda, 2012; Pessino & Fenochietto, 2010). It also suggests
that the positive effect is due not only to the tax reforms undertaken in the West
African Economic and Monetary Union area since the 2000s (cf. the Common
External Tariff adopted in 2014), but also to institutional reforms, notably the moder-
nization of the tax administration (for example, with the 2013 new general tax code
in Senegal).

3.3.2. The endogeneity test

The Durbin-Wu-Hausman test, the null hypothesis for which is the exogeneity of the
suspected endogenous variable, does not reject the null hypothesis of the
exogeneity of IFFs. However, it rejects the corruption hypothesis at the 5% threshold.
Thus, the corruption variable is endogenous (Table 2). Indeed, the endogeneity can first
of all come from a measurement error arising from the fact that the estimators
provided by the indicators of corruption and their level of precision relate only to the
perception of it and not to the phenomenon itself. The endogeneity bias may also result
from the omission of explanatory variables that are correlated with the level of
corruption. Finally, it can also be attributed to a simultaneity bias (Sanyal et al.,
2000). To overcome this difficulty, estimations done using the instrumental variable
method, which seems more convergent than the ordinary least squares one, were
referred to.

Traditionally the literature provides four types of instruments: ethnolinguistic

division, legal traditions (French and British), distance from the equator, 2 and the
urbanization rate (Adserà, 2003; Uslaner, 2004). By way of instruments, this study
used the location of a given West African Economic and Monetary Union country in
relation to the coast, the number of borders with countries outside West African
Economic and Monetary Union, and the urbanization rate. On the face of it, these
variables do not have a direct link with tax revenues while at the same time being
correlated with corruption (Attila et al., 2009).

Several studies have shown that geographical position, culture and population are
determinants of corruption. For example, Sandholtz and Gray (2003) found that
countries surrounded by corrupt countries seemed to be equally corrupt. For the
authors, this could be attributed to the sharing of the same culture. La Porta et al.
(1997) and Gerring and Thacker (2005) suggested that the latitude (relative to the
equator) had a negative and significant effect on corruption. Knack and Azfar (2003)
and Damania et al. (2004) found a positive correlation between population and
corruption.

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Table 2. Results of the Durbin-Wu-Hausman endogeneity test

Variable χ2 p-value
IFFs 276.5 0.111
0
Corruption 276.5 0.24
0
Source: Author’s compilation

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Table 3. Results of the estimation with the instrumental variable (IV) model
TP (1) TP (2) TP (3) TP (4)
FFI −0.0798** −0.0778** −0.0644** −0.147**
*
(−2.90) (−2.67) (−2.86) (−4.40)
PIBhbt 0.00648** 0.00634** 0.0174***
* *
(7.71) (5.12) (5.07)
VAGR 0.111*** −0.00527
(3.64) (−0.13)
INF 0.0921 0.0122
(1.69) (0.34)
Ouv 0.113*** 0.133***
(7.40) (5.02)
Corr −2.843
(−1.71)
Gouv 2.761*
(2.33)
Burkina Faso 4.137***
(3.45)
Côte d’Ivoire −7.228**
*
(−3.93)
Mali 5.424***
(4.93)
Niger 3.791*
(2.55)
Senegal −1.394
(−1.21)
Togo 0.446
(0.28)
Constant 16.22*** 13.23*** 5.529*** −1.878
(24.67) (20.67) (4.22) (−0.60)
No. of obs. 119 119 119 119
J Hansen Stat. 41.74 43.63 34.43 1.197
J Hansen p-value 0.00 0.00 0.00 0.878
(.) t-statistics; (***), (**), (*): the coefficients are significant at the levels of 1%, 5%, and 10%,
respectively.
Source: Author’s compilation

However, their results were contradicted by those obtained by Tavares (2003). The
economic rationale for the use of such instruments lies in the fact that a country’s
geographical character- istics are said to influence its setting up of sustainable
institutions (Acemoglu et al., 2001), which in turn have an impact on the extent of
corruption.

The results are presented in Table 3. The p-value for the Hansen instrument validity
test is higher than 5%. Moreover, the Durbin-Wu-Hausman test rejects the
hypothesis of exogeneity of the corruption variable, which is an indication of the
superiority of the instrumental variable method. To estimate the effects of illicit
financial flows on tax revenue, we use the instrumental variable
(IV) method in order to address endogeneity problems.

Illicit financial flows have a negative and significant effect on government

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revenues, which corroborates the theoretical predictions. For the entire sample and
over the period under study,

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Table 4. The effect of the IFFs on the main transmission channels

PIBhbt VAGR INF Ouv Gouv Corr
IFFs −2.358** −0.018 −0.108 0.032 −0.007* 0.002*
(−3.03) (−0.25) (−1.78) (−0.20) (−1.82) (−1.51)
Burkina Faso −183.922** −8.312*** 0.036 −15.107*** −0.170** 0.249***
*
(−13.47) (−6.39) (−0.03) (−5.39) (−2.67) (−9.77)
Côte d’Ivoire 416.664*** −11.569*** 1.227 27.885*** −0.488*** −0.143***
(−27.44) (−8.00) −1.040 (8.95) (−6.88) (−5.03)
Mali −137.510** 5.516*** 1.901 −1.252 −0.268** −0.016
*
(−7.56) (3.19) (−1.340) (−0.34) (−3.16) (−0.47)
Niger −320.371** 2.799** 0.465 −5.592** −0.304*** 0.370***
*
(−23.24) (2.13) −0.430 (−1.98) (−4.72) −14.340
Senegal 151.945*** −18.080*** −1.011 11.280*** 0.155** 0.433***
(−11.12) (−13.89) (−0.95) (−4.02) (−2.43) −16.970
Togo −181.617** 1.023 0.719 33.573*** −0.855*** 0.075**
*
(−13.02) (0.77) −0.660 (11.73) (−13.13) (2.87)
Constant 591.987*** 35.332*** 3.395*** 55.792*** −0.464*** −0.767***
(−61.00) (38.23) (4.49) (28.02) (−10.23) (−42.29)
Nbr. Obs. 126 126 126 126 126 126
p-value 0.000 0.000 0.647 0.000 0.000 0.000
(.) t-statistics; (***), (**), (*): the coefficients are significant at the levels of 1%, 5%, and 10%, respectively.
Source: Author’s compilation

results showed that a 1 standard-deviation increase in illicit financial flows reduced

the public revenue mobilization ratio by 0.85 points.

3.3.3. Highlighting the transmission channels

Table 4 presents the results of Equation 6. Illicit financial flows were negatively
correlated with the per capita GDP and with the government effectiveness variable.
Illicit financial flows undermine good governance to the extent that they contribute
to compromising a country’s capacity for action (BCEAO, 2013). A positive
relationship was observed between illicit financial flows and corruption (Fontana,
2010). Typically, illicit financial flows are associated with the high costs of corruption
(Benassi & Dorigatti, 2015).

3.3.4. Relative contributions of the transmission channels

Table 5 presents the relative contributions of the different transmission channels.
These contribu- tions were calculated using the coefficients in Tables 1 and 4. Three
channels contribute to the effect of the illicit financial flows on government
revenues: the per capita income, corruption and governance. The contribution of the
per capita income is the most important: up to 10%. It is followed by that of
corruption, 5.5%. The government effectiveness channel contributes only 3.02%.
The total indirect effect of illicit financial flows on government revenues represents
60% of the total effect.

4. Conclusion
This study has shown that illicit financial flows cause heavy losses to the economies
in the West African Economic and Monetary Union area. The study’s econometric
results show that illicit financial flows have a negative and significant effect on the
public revenue mobilization of the West African Economic and Monetary Union
countries. In particular, they highlight the significant impact of the per capita

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income, corruption, and governance, as transmission channels, on this mobilization.

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Table 5. Relative contributions of the different transmission channels

Government revenues as a ratio of GDP

β^ θ^ θ^ * Relative
contribution to
β^
the total effect
Per capita GDP −2.358 0.012 −0.028296 10
Agricultural share −0.018 −0.037 −0.000666 0
in GDP
Inflation rate −0.018 −0.002 −0.000036 0
Trade openness 0.032 0.106 0.003392 −1.2
Corruption 0.002 −7.737 −0.015474 5.5
Governance −0.007 1.222 −0.008554 3.02
Total indirect −0.171 60.12
effect
Direct effect −0.112 39.88
Total effect −0.283 100
Note: The contribution of each transmission channel was calculated using the following formula:
θ^ 𝜔 β.^ ^ Pθ^ 𝜔 β^ is the total effect of the illicit financial flows.
θ 𝜔 β^ where
P
Source: Author’s compilation

The study recommends that governments should reconsider their policies for
combating illicit finan- cial flows. In particular, they should strengthen their tax
collection capacity to better identify and prevent certain illegal activities associated
with illicit financial flows. At the regional level, the West African Economic and
Monetary Union Commission should consider setting up an appropriate illicit financial
flows consultative body that would bring together state and non-state actors. This body
would serve as a platform for consultation, sharing of experiences, and discussing illicit
financial flows issues.

With regard to the per capita income as the main transmission channel,
governments should put in place the incentives that people need to keep and invest
a large part of their profits and savings in their countries of origin.

This study has several limitations. The main one lies in the difficulty encountered
when collecting data. Research on the issue would be enriched if the econometric
analysis focused on the structure of tax revenues, particularly on direct and indirect
taxes. Finally, this research can be taken a step further by looking at the investment
and job-creation losses resulting from illicit financial flows.

Citation information December 2016;

Cite this article as: The effect of illicit financial Arusha, Tanzania,
flows on government revenues in the West December 2017.
African Economic and Monetary Union countries,
Abdou Thiao, Cogent Social Sciences (2021), 7:
1972558.

Notes
1. GFI (Global Financial Integrity) is a non-
governmental organization (NGO) researching
issues of illicit financial flows.
2. The exclusion of Guinea Bissau was due to the
non- availability of data in the country.

Acknowledgements
The author is grateful for comments and
observations from participants at the AERC
Biannual Research Workshop, Addis Ababa,
Ethiopia, December 2015; Dakar, Senegal,

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Author details
Abdou Thiao1
E-mail: [email protected]
ORCID ID: http://orcid.org/0000-0002-0724-242X
1
Cheikh Anta Diop University in Dakar, Senegal.

Disclosure Statement
No potential conflict of interest was reported by the author.

Funding
This work was supported by the African Economic Research Consortium (Grant
number AERC) Consortium pour la recherche économique en Afrique [RT15533]

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Annex A: Trends in the govern-

ment revenue mobilization rate Benin Burkina Faso Cote d'Ivoire
by country from 1980 to 2013.
Note: “graphs by pays”: graph by country; année: yearSource: Author’s compilation based on data from the BCEAO

10 15
5
Guinee Bissau Mali Niger

10 15
T

2005 2010 2015

Senegal Togo
10 15
5

2005 2010 2015 2005 2010 2015

Annee
Graphs by Pays

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Annex C: Descriptive statistics

Variable Obs Mean Std.Dev. Min Max
TP 126 15.37132 3.056516 7.278358 22.0876
1
FFI 126 5.616574 7.191852 0 25.8683
5
PIBhbt 126 542.3433 235.7158 249.6589 1091.51
1
VAGR 126 31.14041 8.929665 13.77404 51.8489
8
INF 126 3.266808 3.26705 −9.82383 16.0449
3 9
ouv 126 63.22664 18.68579 30.73252 108.834
1
Corr 126 −.605659 .3450412 −1.23961 .309991
5 5 6
Gouv 126 −.776775 .3762725 −1.60468 .021948
1 5 8

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Thiao, Cogent Social Sciences (2021), 7:
Annex D: Correlation Matrix
Variables TP PIBhbt VAGR INF ouv Corr Gouv FFI
TP 1
PIBhbt 0,5936* 1
Vagr −0,4542 −0,6574 1
* *
Inf 0,0315 −0,0261 0,0857 1
Ouv 0,5315* 0,4526* −0,1926 0,0401 1
*
Corr 0,0942 0,0563 −0,3228 −0,0755 −0,4119 1
* *
Gouv 0,2116* 0,1377 −0,3368 −0,0331 −0,4882 0,5866* 1
* *
FFI −0,1961 −0,006 0,2811* −0,0504 0,1117 −0,2521 −0,3547 1
* * *
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